Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the
question.
1)
1)
Failure to pay material bills on time may result in which of the following?
A)
Prepayments for materials may be required.
B)
Late charges
C)
Higher material prices
D)
All of the above
Answer:
D
A)
B)
C)
D)
2)
2)
Common retention rates include which of the following?
A)
B)
C)
D)
Answer:
D
A)
B)
C)
D)
3)
3)
Which of the following is not a common payment term for materials bills from suppliers?
A)
30 days after issuing the bill
B)
15 days after issuing the bill
C)
10 days after issuing the bill
D)
20 days after issuing the bill
Answer:
D
A)
B)
C)
D)
4)
4)
Which of the following is not a way that a construction company can reduce a project’s need for
cash?
A)
Level labor resources
B)
Increase profit and overhead markup
C)
Decrease the use of subcontractors
D)
Decrease retention rate
Answer:
C
A)
B)
C)
D)
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5)
5)
Which of the following is not generally true about the rate of progress on a project?
A)
Speeds up as the project nears completion
B)
Starts slow at the beginning of the project
C)
Picks up speed through the middle of the project
D)
Slows down at the end of the project
Answer:
A
A)
B)
C)
D)
6)
6)
For a construction company that bills monthly with the owner paying one month after the bill is
received, the construction company will need to cover labor for ________.
A)
B)
C)
D)
Answer:
B
A)
B)
C)
D)
7)
7)
What is the first step in developing a cash flow projection for a construction project?
A)
Determine when the company will pay for items
B)
Prepare a cost–loaded schedule
C)
Determine the difference between cash inflows and cash outflows
D)
Determine when payment will be received by the owner
Answer:
B
A)
B)
C)
D)
8)
8)
Which of the following is not a characteristic of the cash flow for construction companies that
receive progress payments?
A)
Retention is held until the completion of the project.
B)
Some payments can be deferred until payment is received from the owner.
C)
Labor is paid monthly.
D)
Cash receipts usually occur monthly.
Answer:
C
A)
B)
C)
D)
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9)
9)
What is the last step in developing a cash flow projection for a construction project?
A)
Determine the difference between cash inflows and cash outflows
B)
Determine when payment will be received by the owner
C)
Prepare a cost–loaded schedule
D)
Determine when the company will pay for items
Answer:
A
A)
B)
C)
D)
10)
10)
Which of the following are true about construction companies that have sufficient cash?
A)
It is harder to hire labor.
B)
The company may become bankrupt even though they are profitable.
C)
It is harder to obtain insurance.
D)
It is easier to obtain bonding.
Answer:
D
A)
B)
C)
D)
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
11)
At what time during the month is the cash needed by a project greatest?
Answer:
During each month the greatest need for cash occurs just prior to receipt of the payment from the
owner.
12)
How does using subcontractors affect a project’s cash flow?
Answer:
One of the advantages of using subcontractors is that subcontractors are often paid when the contractor
gets paid. This allows the contractor to use the subcontractor’s cash for the materials, labor, and
equipment supplied by the subcontractor rather than the contractor using his or her own cash. The
contractor often holds retention from the subcontractor, further reducing the contractor’s need for cash.
13)
What are the two ways construction companies provide cash to projects?
Answer:
The cash is provided in the form of actual cash used to cover the costs of the work and the deferral of
the profit and overhead markup by the construction company.
14)
How are cost grouped when preparing a cash flow for a project?
Answer:
The costs on the cost–loaded schedule must be grouped based on their payment terms.
15)
How does the rate of progress affect the cash needed by a project?
Answer:
The amount of cash neededexcluding retentionis greatest when the rate of progress is greatest.
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16)
How does labor resource leveling affect the cost curve?
Answer:
The leveled labor costs produce smaller peak monthly labor costs and reduce the company’s need for
cash.
17)
How does the schedule of payments from the owner affect the project’s need for cash?
Answer:
A construction company will need more cash to complete a project when the owner pays the monthly
bill 60 days after receipt than it would need if the owner paid the monthly bill 15 days after receipt.
18)
How are projects with a single payment from the owner different than projects where the company receives
progress payments?
Answer:
First, because there are no progress payments, the peak amount of cash required is equal to the cash
required at the end of the month for all but the last month when the payment is received. Second,
retention is not held because there are no progress payments. Third, the construction company may
also be paying some, if not all, of the soft costs.
19)
What happens when the cash disbursements exceeds the cash receipts for a project?
Answer:
If the cash disbursements exceed the cash receipts on a project, the company will need to supply cash
to fund the project, and the cash flow will be negative.
20)
What are the two primary threats to a construction company?
Answer:
There are two primary threats to a construction company’s financial future. The first threat is the lack
of profitability. The second threat is insufficient cash. Insufficient cash is where the company lacks
sufficient funds to pay the bills that are due.
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Answer Key
Testname: C12
1)
D
2)
D
3)
D
4)
C
5)
A
6)
B
7)
B
8)
C
9)
A
10)
D
11)
During each month the greatest need for cash occurs just prior to receipt of the payment from the owner.
12)
One of the advantages of using subcontractors is that subcontractors are often paid when the contractor gets paid.
This allows the contractor to use the subcontractor’s cash for the materials, labor, and equipment supplied by the
subcontractor rather than the contractor using his or her own cash. The contractor often holds retention from the
subcontractor, further reducing the contractor’s need for cash.
13)
The cash is provided in the form of actual cash used to cover the costs of the work and the deferral of the profit and
overhead markup by the construction company.
14)
The costs on the cost–loaded schedule must be grouped based on their payment terms.
15)
The amount of cash neededexcluding retentionis greatest when the rate of progress is greatest.
16)
The leveled labor costs produce smaller peak monthly labor costs and reduce the company’s need for cash.
17)
A construction company will need more cash to complete a project when the owner pays the monthly bill 60 days
after receipt than it would need if the owner paid the monthly bill 15 days after receipt.
18)
First, because there are no progress payments, the peak amount of cash required is equal to the cash required at the
end of the month for all but the last month when the payment is received. Second, retention is not held because there
are no progress payments. Third, the construction company may also be paying some, if not all, of the soft costs.
19)
If the cash disbursements exceed the cash receipts on a project, the company will need to supply cash to fund the
project, and the cash flow will be negative.
20)
There are two primary threats to a construction company’s financial future. The first threat is the lack of profitability.
The second threat is insufficient cash. Insufficient cash is where the company lacks sufficient funds to pay the bills
that are due.
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