Ghana's construction value-added contracted 9.9% in 2023 but is forecast to rebound 3.2% in 2024. If Adinkra Concrete wants to smooth revenue volatility, which income stream below would least correlate with cyclical swings in construction?
Select your answer:
A) Sale of ready-mix cement
B) Long-term lease of batching plants
C) Supply of re-bar to contractors
D) Contract paving of feeder roads
Answer (2)
The income stream that would least correlate with cyclical swings in construction is the Long-term lease of batching plants (Option B), as it provides steady income regardless of construction trends. Other options are more directly affected by the construction cycle. Therefore, leasing batching plants offers a smoother revenue flow for Adinkra Concrete.
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To determine which income stream would least correlate with cyclical swings in the construction industry, we need to consider the nature and stability of each option during economic fluctuations.
Sale of ready-mix cement (Option A): This is likely to be highly correlated with construction cycles, as demand for ready-mix cement usually decreases during downturns in construction activity and increases when there is a boom.
Long-term lease of batching plants (Option B): Leasing batching plants provides a more stable and predictable income stream. Lease agreements are generally long-term, and payments are consistent regardless of immediate construction project fluctuations.
Supply of re-bar to contractors (Option C): Similar to ready-mix cement, the supply of re-bar is tied closely with construction activity. A decline in construction projects likely leads to reduced demand for re-bar.
Contract paving of feeder roads (Option D): While somewhat dependent on construction funding, contract paving might show some resilience depending on government projects. However, it still largely follows the construction cycle.
Answer: Option (B) Long-term lease of batching plants is the income stream that would least correlate with cyclical swings in construction. The reason is that lease agreements are typically stable and offer predictable revenues despite fluctuations in construction demand. Unlike the other options, which are directly linked to immediate construction activities, leases provide a buffer against volatility.
