FAC Financial Analysis & Valuation 3

Question 1

In federal contracting, a 'rough order of magnitude' (ROM) estimate typically carries an accuracy range of:

Accepted Answer

-25% to +75%

Answer

ROM estimates are early-stage approximations with wide accuracy ranges, commonly cited as -25% to +75% due to limited scope definition.

Question 2

Which method is BEST suited for estimating costs of a contract that is nearly identical to a previously completed contract?

Accepted Answer

Analogous estimating

Answer

Analogous estimating uses historical data from a similar past project as the basis for the new estimate, making it ideal when a close precedent exists.

Question 3

The Net Present Value (NPV) method in capital budgeting discounts future cash flows because:

Accepted Answer

Future cash is worth less than present cash due to the time value of money

Answer

NPV reflects the time value of money principle: a dollar available today is worth more than a dollar received in the future because of its earning potential.

Question 4

A contract's 'burn rate' refers to:

Accepted Answer

The speed at which contract funds are being expended relative to the schedule

Answer

Burn rate measures how quickly a contractor is consuming contract funding compared to the planned spending profile and schedule.

Question 5

Under the Earned Value Management System (EVMS), a Cost Performance Index (CPI) of 0.85 means:

Accepted Answer

For every dollar spent, only 85 cents of work value is being produced

Answer

A CPI of 0.85 indicates cost inefficiency — the contractor is getting only $0.85 of earned value for each $1.00 actually spent.

(FAC) Federal Acquisition Certification Practice Test

(FAC) Federal Acquisition Certification Practice Test

FAC Financial Analysis & Valuation 3