Equipment Financial Management Flashcards
7 cards from real CEM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Equipment Financial Management flashcards as text
The Net Present Value (NPV) of an equipment investment is best described as:
Answer: Present value of future cash flows minus initial investment
NPV equals the present value of all expected future cash flows minus the initial investment cost.
A contractor is deciding between renting and owning equipment. Which factor most favors renting?
Answer: Specialized equipment needed sporadically
When specialized equipment is needed only occasionally, renting avoids idle ownership costs and maintenance burdens.
What is the purpose of a fleet replacement reserve fund?
Answer: To accumulate capital for future equipment purchases
A replacement reserve fund sets aside money over time so capital is available when aging equipment must be replaced.
Which cost is classified as a variable operating cost for heavy equipment?
Answer: Fuel consumption
Fuel consumption varies directly with equipment usage hours, making it a variable operating cost.
Internal Rate of Return (IRR) is the discount rate at which:
Answer: NPV of the investment equals zero
IRR is the discount rate that makes the net present value of all cash flows from an investment equal to zero.
Under a capital (finance) lease, how is the leased asset recorded on the lessee's balance sheet?
Answer: As both an asset and a liability
Under a capital lease, the lessee records the asset's value and a corresponding lease obligation on the balance sheet.
Equipment utilization rate is calculated as:
Answer: Actual hours worked / Available hours × 100
Utilization rate equals actual productive hours divided by total available hours, expressed as a percentage.