AFSB 151 - Application Questions
(Chapters 1-8)
Akiem owns a small hardware business. He plans to hire a contractor to build a new retail
building for his business. Akiem contacted his financial planner for advice on
...
AFSB 151 - Application Questions
(Chapters 1-8)
Akiem owns a small hardware business. He plans to hire a contractor to build a new retail
building for his business. Akiem contacted his financial planner for advice on the type of bods he
should require from the contractor to be assured that the work will be completed properly,
according to the specifications and in compliance with city building codes. Akiem believes that
personal suretyship, backed by his brother (the surety), would be sufficient for his small business
bond needs. What advice and justification should the financial manager give Akiem regarding
personal versus corporate suretyship? - ✔✔Akiem's financial planner should explain to him that
a person suretyship with his brother as surety is a risky prospect. If the contractor (principal) and
his brother both become bankrupt, he could have little recourse for completing his building or
recovering his lost funding, and this could lead to conflicts with his brother. He should explain
that corporate suretyship may seem expensive, but the premiums, and corporate sureties have
expert knowledge and are controlled by laws to protect obligees form contractors' defaults. A
corporate surety would evaluate the contractor (principal) to determine whether he merits their
backing and whether he has sufficient capital for completing the job. A corporate surety would
ensure that the building is completed as required.
Jacqueline is hiring a contractor to build a new home on her property after her former home was
destroyed by a disaster that struck her town. She is leery of contractors that are actively soliciting
building project in the disaster area, so she considered requiring that her selected contractor
provide construction contract bonds. Indicate whether this type of bond would be a statutory or
non statutory bond, and explain why Jacqueline might forgo this bond requirement if she
confirms that the contractor is bonded for commercial projects. - ✔✔The bond that Jacqueline
might require is a non statutory bond because it is no
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