Virginia Contractor General Practice Test

What is the value of the Max Bond based on Working Capital?

1. Working Capital x 5

2. Working Capital x 10

3. Working Capital x 15

4. Working Capital x 20

The correct answer is: Working Capital x 10

The value of the Max Bond based on Working Capital is determined by the industry standard for how much bonding capacity a contractor can secure based on their working capital. Typically, bonding companies assess a contractor's financial health, and for working capital, a common multiplier used is 10. This means that if a contractor has a certain amount of working capital, they may be eligible for a bond that is up to ten times that amount. This multiplier takes into account the contractor's ability to manage operational costs and complete projects without financial strain, providing a safeguard for the bonding company in case of claims. Therefore, using the working capital and multiplying it by 10 reflects a standard bonding capacity, making this choice the right answer. The other multipliers suggested in the options represent less common valuations and are not typically utilized in the bonding process.