CCIFP Construction Project Financing and Capital Structure 2

Question 1

Retainage in construction contracts is typically released when:

Accepted Answer

Substantial completion or final completion is achieved

Answer

Retainage (typically 5–10% withheld from each payment) is released upon substantial or final completion and owner acceptance.

Question 2

Which type of bond guarantees that a construction contractor will complete the project according to contract terms?

Accepted Answer

Performance bond

Answer

A performance bond protects the project owner by guaranteeing the surety will complete the project if the contractor defaults.

Question 3

Under the percentage-of-completion method, contract revenue is recognized based on:

Accepted Answer

Costs incurred to date divided by total estimated costs

Answer

Revenue is recognized proportionally as the ratio of costs incurred to total estimated contract costs, reflecting work actually performed.

Question 4

A contractor with negative working capital may signal which risk to lenders and sureties?

Accepted Answer

Inability to meet short-term obligations

Answer

Negative working capital (current liabilities > current assets) indicates the contractor may struggle to pay suppliers, subcontractors, and short-term debts.

Question 5

In construction project financing, a 'completion guarantee' is typically provided by:

Accepted Answer

The general contractor to the lender

Answer

A completion guarantee is a contractor's assurance to the lender that the project will be completed regardless of cost overruns, protecting the lender's collateral.

CCIFP - Certified Construction Industry Financial Professional Practice Test

CCIFP - Certified Construction Industry Financial Professional Practice Test

CCIFP Construction Project Financing and Capital Structure 2