AACE International CCP Exam - Topic 4 Question 16 Discussion

Actual exam question for AACE International's CCP exam

Question #: 16
Topic #: 4

[All CCP Questions]

An agricultural corporation that paid 53% in income tax wanted to build a grain elevator designed to last twenty-five (25) years at a cost of $80,000 with no salvage value. Annual income generated would be $22,500 and annual expenditures were to be $12,000.

Answer the question using a straight line depreciation and a 10% interest rate.

The main financial objective of many enterprises is:

ATo maximize the total long-term economic return

BSubject to a well-conceived quality control plan

CTo balance opportunities and risks

DDependent on the backlog projects and the availability of resources

Show Suggested Answer

Suggested Answer: C

In construction and project management, a three-party contractual relationship typically involves three key participants: the Owner, the Engineer, and the Contractor.

Key Points:

Owner:

The entity that funds and owns the project. The owner defines the project scope, objectives, and requirements and is the ultimate decision-maker.

Engineer:

Often referred to as the 'Designer' or 'Consultant,' the engineer is responsible for the technical design and specifications of the project. They ensure the project is constructed according to the owner's requirements and standards.

Contractor:

The party responsible for executing the construction work. The contractor follows the design provided by the engineer and delivers the project within the agreed terms of the contract.

Conclusion: The correct answer is C. Owner, engineer, contractor because these three parties are central to the execution and management of construction projects under a three-party contractual arrangement.

by Rory at Jan 13, 2025, 11:53 PM

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Horace

3 months ago

Wait, no salvage value? That’s surprising!

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Alecia

3 months ago

Balancing opportunities and risks sounds right to me.

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Merlyn

3 months ago

53% tax? Seems really high for a corporation.

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Audra

4 months ago

I think maximizing long-term returns is key!

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Lonna

4 months ago

That grain elevator will cost $80k and last 25 years.

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Amie

4 months ago

I feel like the answer could depend on the specific goals of the corporation, but I lean towards maximizing returns as the main objective.

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Laine

4 months ago

I think maximizing returns is important, but balancing opportunities and risks might be a more comprehensive approach. I’m torn between A and C.

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Catherin

4 months ago

This question seems similar to one we practiced about investment returns, but I can't recall the exact formula for calculating the total long-term economic return.

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Leonardo

5 months ago

I remember we discussed how to calculate straight-line depreciation, but I'm not sure how to apply it in this context with the tax implications.

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Ashleigh

5 months ago

This is a classic capital budgeting problem. I've seen these before, so I'm feeling pretty confident. I'll set up the cash flow projections, calculate the NPV, and select the option that gives the highest return. The key is to make sure I account for the tax implications correctly.

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King

5 months ago

Okay, let me think this through step-by-step. First, I'll need to calculate the annual cash flows, then discount them at 10% over 25 years. That should give me the net present value. Then I just need to choose the option that maximizes NPV. Seems doable, but I'll need to double-check my work.

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Rikki

5 months ago

Hmm, I'm a little confused by all the numbers and variables here. I'll need to carefully read through the details and make sure I understand what I'm supposed to calculate. Straight-line depreciation and 10% interest rate, got it.

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Celeste

5 months ago

This looks like a pretty straightforward financial analysis problem. I think I can handle this - I just need to calculate the net present value of the project and see which option maximizes it.

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Armanda

10 months ago

I was leaning towards C, 'to balance opportunities and risks,' but I think A is the best answer here. Maximizing long-term economic return seems to be the primary goal for most businesses, especially when they're investing in big projects like this grain elevator.

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Bette

8 months ago

A) To maximize the total long-term economic return

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Mary

8 months ago

I think quality control is important, but ultimately the goal is to maximize economic return.

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Laquanda

8 months ago

B) Subject to a well-conceived quality control plan

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Remona

8 months ago

I agree, maximizing long-term economic return is crucial for the success of any business.

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Hyman

8 months ago

A) To maximize the total long-term economic return

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Lauryn

9 months ago

Yes, it's important to make decisions that will ultimately lead to the highest financial gain in the long run.

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Lauryn

9 months ago

I agree, maximizing long-term economic return is crucial for the success of any business.

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Lauryn

9 months ago

A) To maximize the total long-term economic return

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Cordell

10 months ago

Haha, D definitely sounds like the kind of answer my boss would choose. 'Dependent on the backlog projects and the availability of resources' - that sounds like corporate-speak for 'we'll figure it out as we go!' I'm going with A.

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Boris

10 months ago

Haha, I agree! D does sound like something a boss would say. A seems like the safe choice.

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Boris

10 months ago

A) To maximize the total long-term economic return

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Andree

10 months ago

I'm not sure about this one. The question mentions a lot of specifics, like the tax rate and the cost of the grain elevator, but I'm not sure how that relates to the main financial objective. I'll have to think about this one a bit more.

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Jacquelyne

11 months ago

I think the correct answer is A. Maximizing long-term economic return seems to be the main financial objective for most enterprises. The information provided about the agricultural corporation's financial details supports this.

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