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Exam CCP Topic 4 Question 123 Discussion

Actual exam question for AACE International's CCP exam
Question #: 123
Topic #: 4
A used concrete pumping truck can be purchased for $125,000. The operation costs are expected to be $65,000 the first year and increase 5% each year thereafter. As a result of the purchase, the company will see an increase in income of $100,000 the first year and 5% more each subsequent year. The company uses straight-line depreciation. The truck will have a useful life of five (5) years and no salvage value. Management would like to see a 10% return on any investment. The company's tax rate is 28%.
What Kind of optimization modeling is used in making investment analysis to evaluate the risks associated with the potential investment?

Suggested Answer: D Vote an answer

Monte Carlo Simulation is commonly used in investment analysis to evaluate risks associated with potential investments. This method involves running multiple simulations to predict the range of possible outcomes based on varying inputs and assumptions. In the context of investment, Monte Carlo simulations help in assessing the uncertainty and volatility of returns by simulating various scenarios of cash flows, costs, and economic conditions, making it an ideal tool for risk evaluation.

by Eugene at Oct 12, 2024, 08:12 AM

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