AACE International CCP Exam - Topic 4 Question 22 Discussion

Actual exam question for AACE International's CCP exam

Question #: 22
Topic #: 4

A used concrete pumping truck can be purchased for $125,000. The operation costs are expected to be $65,000 the first year and increase 5% each year thereafter. As a result of the purchase, the company will see an increase in income of $100,000 the first year and 5% more each subsequent year. The company uses straight-line depreciation. The truck will have a useful life of five (5) years and no salvage value. Management would like to see a 10% return on any investment. The company's tax rate is 28%.

Is a rise in the price level of a good or service, or market basket of goods and/or services.

Aescalation

Bdeflation

Cincremental costs

Dinflation

Show Suggested Answer

Suggested Answer: D

Given that the average life span of the lithium battery is 24 months with a standard deviation of 2 months, we need to calculate the probability that the battery will last between 20 and 26 months.

Using the Z-score formula:

Z=XZ = \frac{X - \mu}{\sigma}Z=X

For 20 months: Z=20242=2Z = \frac{20 - 24}{2} = -2Z=22024=2

For 26 months: Z=26242=1Z = \frac{26 - 24}{2} = 1Z=22624=1

Looking up these Z-scores in the standard normal distribution table:

Z = -2 corresponds to approximately 2.28%

Z = 1 corresponds to approximately 84.13%

The probability that the battery will last between 20 and 26 months is approximately 84%.

by Asarudeen at Feb 14, 2025, 04:17 PM

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Shawnee

9 months ago

Straight-line depreciation means the truck loses value evenly over time.

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Stephaine

9 months ago

The operation costs are a big factor here too!

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Willard

9 months ago

Wait, are we sure it's inflation? Seems too simple.

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An

10 months ago

I think it's deflation, prices are dropping, right?

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Buck

10 months ago

That's definitely inflation, prices are going up!

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Pauline

10 months ago

I think the answer is definitely inflation. It matches what we learned about how prices rise over time, especially in relation to operational costs.

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Alpha

10 months ago

I feel a bit confused about the terms. I know deflation is the opposite of inflation, but I can't recall the exact context for escalation or incremental costs.

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Cyril

10 months ago

This question seems similar to one we practiced in class about cost analysis and returns. I think the answer might be inflation since it relates to price levels.

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Tish

11 months ago

I remember studying about inflation and how it affects purchasing power, but I'm not entirely sure if that's the right term here.

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Natalie

11 months ago

This is a classic capital budgeting problem. I'm going to start by calculating the net present value of the cash flows to see if the investment meets the 10% return requirement. Once I have that, I can probably figure out the connection to the price level question.

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Lonna

11 months ago

I'm a little confused by the last part of the question about the price level. That seems unrelated to the rest of the problem. I'll focus on the financial analysis first and then see if I can figure out how that last part fits in.

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Erinn

11 months ago

Okay, let's break this down step-by-step. We have the initial cost of the truck, the operating costs, the increase in income, the depreciation, and the required return on investment. I think if we tackle each of those pieces, we can figure out the answer.

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Cory

11 months ago

This question seems straightforward, but I want to make sure I understand all the details before I start calculating anything.

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Tamekia

1 year ago

I'm going with 'C) incremental costs'. It's got that nice, business-y ring to it. Plus, who doesn't love a good ol' cost increase? It's like the inflation of the corporate world.

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Angelo

1 year ago

Definitely 'D) inflation'. It's the only option that actually makes sense given the information provided. Although, I do appreciate the subtle humor in the question. Who doesn't love a good 'rise in the price level' joke?

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Louvenia

1 year ago

Definitely 'D) inflation'. It's the only option that actually makes sense given the information provided.

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Brianne

1 year ago

I agree, the scenario described definitely fits the definition of inflation. 'D) inflation' is the correct answer.

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Annice

1 year ago

Yeah, it's pretty clear with the 5% increase in income and operation costs. 'D) inflation' is the right choice.

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Annmarie

1 year ago

I think it's 'D) inflation' too. The increase in income and operation costs going up each year definitely points to inflation.

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Ricarda

1 year ago

Ooh, 'B) deflation' sounds like the way to go. I mean, if prices are going down, that's gotta be better than inflation, right? Although, now that I think about it, that doesn't really make sense in this context. Ah well, I'll take a guess!

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Gearldine

1 year ago

I'm going with 'A) escalation'. It just sounds more technical and fancy than 'inflation', you know? Plus, who wants to be basic when you can be escalated?

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Raul

1 year ago

'A) escalation' does sound fancy, but I think 'D) inflation' is the correct answer here.

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Deonna

1 year ago

I'm not sure, but 'D) inflation' seems like a common term used for a rise in prices.

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Charolette

1 year ago

I think 'A) escalation' is the right answer too. It does sound more technical.

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Domitila

1 year ago

Hmm, the correct answer is clearly 'D) inflation'. The question talks about a rise in the price level, which is the definition of inflation. Simple stuff, really.

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