CBA CBA Capital Budgeting & Investment Analysis 2 — Questions and Answers
Question 1: Which federal law established requirements for agencies to develop capital programming guidance and evaluate major capital investments?
- Clinger-Cohen Act of 1996 (Correct answer)
- Federal Acquisition Reform Act of 1994
- Chief Financial Officers Act of 1990
- Government Management Reform Act of 1994
Correct answer: Clinger-Cohen Act of 1996
The Clinger-Cohen Act (also known as the Information Technology Management Reform Act) required agencies to implement capital programming processes and select and manage IT investments based on return on investment.
Question 2: In federal capital investment analysis, 'Earned Value Management' (EVM) is used to:
- Integrate scope, schedule, and cost data to measure project performance and forecast final cost and schedule (Correct answer)
- Calculate the residual value of a capital asset at the end of its useful life
- Determine whether an investment meets the threshold for capitalization
- Allocate overhead costs to individual capital projects
Correct answer: Integrate scope, schedule, and cost data to measure project performance and forecast final cost and schedule
EVM is a project management tool that integrates technical, schedule, and cost performance, providing early warning of cost overruns and schedule slippage through metrics like cost performance index (CPI) and schedule performance index (SPI).
Question 3: What is the 'payback period' method in capital investment analysis?
- The time required for an investment's cumulative net benefits to recover the initial capital cost (Correct answer)
- The number of fiscal years before an asset must be replaced or renovated
- The period during which an investment is eligible for federal capital funding
- The time between project approval and the first obligation of funds
Correct answer: The time required for an investment's cumulative net benefits to recover the initial capital cost
The payback period measures how long it takes for an investment's benefits to equal its initial cost, providing a simple liquidity-focused metric for comparing investment alternatives.
Question 4: In a federal lease-versus-purchase analysis, which factor is MOST critical to consider?
- The net present value of total costs under each option over the full period of need (Correct answer)
- The agency's current-year obligation rate for capital accounts
- Whether the asset qualifies as a capital item under FASAB standards
- The prevailing market interest rate for 30-year Treasury bonds
Correct answer: The net present value of total costs under each option over the full period of need
OMB Circular A-11 requires agencies to compare the NPV of total costs under leasing versus purchasing alternatives over the full period of need to identify the most cost-effective option.
Question 5: What is a 'should-cost' analysis in the context of federal capital budgeting?
- An independent estimate of what an acquisition should cost based on technical requirements and market conditions, used to evaluate vendor proposals (Correct answer)
- A OMB-mandated review of whether a program's budget exceeds its congressional authorization
- A GAO analysis of whether agency spending is consistent with statutory purpose
- A Treasury assessment of the minimum cost to maintain an aging capital asset
Correct answer: An independent estimate of what an acquisition should cost based on technical requirements and market conditions, used to evaluate vendor proposals
A should-cost analysis is an independent government estimate that models expected costs based on technical scope, labor, materials, and market data, used to evaluate the reasonableness of contractor proposals.
Question 6: Which FASAB standard governs the accounting and reporting of general property, plant, and equipment (PP&E) for federal agencies?
- SFFAS No. 6, Accounting for Property, Plant, and Equipment (Correct answer)
- SFFAS No. 1, Accounting for Selected Assets and Liabilities
- SFFAS No. 7, Accounting for Revenue and Other Financing Sources
- SFFAS No. 4, Managerial Cost Accounting Standards
Correct answer: SFFAS No. 6, Accounting for Property, Plant, and Equipment
FASAB's Statement of Federal Financial Accounting Standards No. 6 establishes the recognition, measurement, and reporting requirements for general PP&E held by federal agencies.
CBA CBA Capital Budgeting & Investment Analysis 2
Which federal law established requirements for agencies to develop capital programming guidance and evaluate major capital investments?