CBA CBA Capital Budgeting & Investment Analysis

Question 1

In federal capital budgeting, what distinguishes a 'capital asset' from an operating expense?

Accepted Answer

Capital assets have a useful life of more than one year and a cost above the agency's capitalization threshold

Answer

Capital assets are funded through mandatory appropriations, while operating expenses use discretionary funds

Answer

Capital assets must be approved by the GAO before acquisition

Answer

Capital assets are limited to real property and exclude IT investments

Question 2

What is the primary purpose of a Cost-Benefit Analysis (CBA) in federal investment decision-making?

Accepted Answer

To compare the total social benefits of a proposed investment against its total costs to determine net social value

Answer

To document the total lifecycle cost of an asset for depreciation purposes

Answer

To estimate the probability that a project will exceed its baseline cost and schedule

Answer

To satisfy OMB A-123 internal controls requirements for major acquisitions

Question 3

Which of the following best describes the 'discount rate' used in federal cost-benefit analysis?

Accepted Answer

The rate used to convert future costs and benefits to their present value, reflecting the time value of money

Answer

The percentage reduction applied to vendor bids during competitive procurement

Answer

The interest rate on Treasury securities used to fund capital projects

Answer

The rate at which a capital asset loses value due to depreciation

Question 4

In OMB's capital programming guidance, what is the purpose of a 'life-cycle cost estimate' (LCCE)?

Accepted Answer

To capture all costs associated with an investment from acquisition through disposal, enabling total cost comparison

Answer

To project only the initial procurement and installation costs of a capital asset

Answer

To estimate annual depreciation expense for financial statement reporting

Answer

To document the cost of replacing a capital asset at end of life

Question 5

Under OMB Exhibit 300, federal agencies are required to submit capital asset plans for investments that are classified as:

Accepted Answer

Major IT investments, major acquisitions, and other high-risk investments above OMB's review thresholds

Answer

All capital assets regardless of cost or type

Answer

Only real property acquisitions above $50 million

Answer

IT investments funded through working capital funds only

Question 6

What does a positive Net Present Value (NPV) indicate about a proposed capital investment?

Accepted Answer

The present value of expected benefits exceeds the present value of costs, suggesting the investment adds value

Answer

The project will recover its initial cost within the first fiscal year

Answer

The investment has a lower cost than all competing alternatives

Answer

The project's internal rate of return equals the agency's discount rate