AACE International CCP Exam - Topic 4 Question 22 Discussion

Actual exam question for AACE International's CCP exam

Question #: 22
Topic #: 4

[All CCP Questions]

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

Limited Time Offer

25%

Off

Get Premium CCP Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Shawnee

3 months ago

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

upvoted 0 times

...

Stephaine

3 months ago

The operation costs are a big factor here too!

upvoted 0 times

...

Willard

4 months ago

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

upvoted 0 times

...

An

4 months ago

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

upvoted 0 times

...

Buck

4 months ago

That's definitely inflation, prices are going up!

upvoted 0 times

...

Pauline

4 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.

upvoted 0 times

...

Alpha

5 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.

upvoted 0 times

...

Cyril

5 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.

upvoted 0 times

...

Tish

5 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.

upvoted 0 times

...

Natalie

5 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.

upvoted 0 times

...

Lonna

5 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.

upvoted 0 times

...

Erinn

5 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.

upvoted 0 times

...

Cory

5 months ago

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

upvoted 0 times

...

Tamekia

10 months 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.

upvoted 0 times

...

Angelo

10 months 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?

upvoted 0 times

Louvenia

8 months ago

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

upvoted 0 times

...

Brianne

9 months ago

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

upvoted 0 times

...

Annice

9 months ago

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

upvoted 0 times

...

Annmarie

9 months ago

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

upvoted 0 times

...

Ricarda

10 months 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!

upvoted 0 times

...

Gearldine

10 months 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?

upvoted 0 times

Raul

9 months ago

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

upvoted 0 times

...

Deonna

9 months ago

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

upvoted 0 times

...

Charolette

9 months ago

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

upvoted 0 times

...

Domitila

10 months 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.

upvoted 0 times