CCE Life Cycle Costing & Total Cost of Ownership 3

Question 1

The federal government's primary source for discount rates to use in federal LCCA is:

Accepted Answer

OMB Circular A-94, which publishes annual real and nominal discount rates

Answer

The Federal Reserve prime lending rate

Answer

The 10-year U.S. Treasury bond yield at time of analysis

Answer

AACE International RP 12R-81 published rates

Question 2

Energy cost escalation in LCCA is handled differently from general inflation because:

Accepted Answer

Energy prices historically escalate at rates different from the general Consumer Price Index

Answer

Energy prices are fixed by federal regulation and never change

Answer

Energy costs are excluded from all life-cycle cost analyses by convention

Answer

Energy is typically a one-time cost that does not recur

Question 3

In the context of Life Cycle Costing, 'externalities' refer to:

Accepted Answer

Costs incurred by parties outside the project that are not reflected in market prices

Answer

Equipment purchased from external vendors rather than made in-house

Answer

Regulatory fees paid to external government agencies

Answer

Overhead costs allocated from corporate headquarters

Question 4

A Net Present Value (NPV) comparison in LCCA that yields a negative NPV for the incremental investment means:

Accepted Answer

The base alternative is the more economical choice

Answer

The alternative with higher first cost should be selected

Answer

The study period selected was too short to be valid

Answer

The discount rate must be recalculated using nominal dollars

Question 5

Which LCC cost element encompasses costs associated with personnel training, documentation, and technical support for an installed system?

Accepted Answer

Operations and support costs

Answer

Acquisition and procurement costs

Answer

Disposal and decommissioning costs

Answer

Regulatory compliance costs

Question 6

When comparing mutually exclusive alternatives with unequal service lives using LCCA, the recommended approach is to:

Accepted Answer

Establish a common study period using the Least Common Multiple of the service lives or a fixed planning horizon with salvage values

Answer

Simply compare NPV over each alternative's individual service life

Answer

Use the alternative's manufacturer-stated design life as the study period

Answer

Select the alternative with the longest service life regardless of cost

Question 7

The AACE International Recommended Practice that provides guidance on parametric estimating as it relates to life-cycle cost models is BEST described as addressing:

Accepted Answer

Statistical relationships between cost drivers and system parameters to estimate LCC elements

Answer

Scheduling techniques for cost control in construction

Answer

Standard formats for bid documents and procurement contracts

Answer

Risk-adjusted contingency reserves for capital budgets