Question 1

Which level of government in the United States does not employ a formal capital budgeting process?

Accepted Answer

The federal government does not use a formal capital budgeting process, unlike state and local governments, which often have such processes to plan and finance long-term investments.

Question 2

In the public sector, the purchase or construction of a long-lasting physical asset or facility is called a(n):

Accepted Answer

E

Question 3

Which of the following is a typical problem that sometimes occurs in classifying an expenditure as capital or current?

Accepted Answer

All the options describe typical problems in distinguishing between capital and current expenditures, such as differences in scale, cost-benefit considerations, and the nature of repairs.

Question 4

What is the first step in a typical public sector capital investment planning process?

Accepted Answer

The first step in a typical public sector capital investment planning process is inventorying existing capital assets to understand the current state and needs before planning future investments.

Question 5

Which of the following is not an example of a capital project?

Accepted Answer

Subleasing of existing facilities is not a capital project as it does not involve investment in physical assets or infrastructure improvements.

Question 6

The financial resources necessary to implement a capital investment program at the local level rarely are financed through:

Accepted Answer

The answer of The financial resources necessary to implement a...

Question 7

Approximately what percentage of the capital investment portion of the U.S. federal budget goes toward Department of Defense acquisitions?

Accepted Answer

The Department of Defense typically receives a significant portion of the U.S. federal budget for capital investments, often exceeding 50%, due to the high costs associated with defense acquisitions and military infrastructure.

Question 8

Approximately what percentage of federal physical capital outlays are grants to state and local governments?

Accepted Answer

Approximately 31% of federal physical capital outlays are grants to state and local governments.

Question 9

In an economic benefit analysis, what do we call the potential indirect spillover or secondary costs and benefits?

Accepted Answer

Externalities refer to the indirect spillover or secondary costs and benefits that affect third parties who are not directly involved in the economic transaction.

Question 10

What is the term for imputing the benefit of a proposed government project or service when no market price exists?

Accepted Answer

Shadow pricing is used to estimate the value of a project or service when no market price is available, often in cost-benefit analysis.

Question 11

How an expenditure is financed (using current revenues vs. some form of longer-term financing) is one of the reasons state and local governments, as opposed to the federal government, separate capital expenditures from current expenditures in the budget process.

Accepted Answer

State and local governments separate capital and current expenditures to manage their budgets effectively, as they often rely on different financing methods, unlike the federal government which can run deficits.

Question 12

Governments, and other organizations, that have a comprehensive multiyear capital investment plan typically also have a corresponding capital budget.

Accepted Answer

The answer of Governments, and other organizations, that have a...

Question 13

Many governmental entities ignore the distinction between capital and current expenditures.

Accepted Answer

Many governmental entities maintain a clear distinction between capital and current expenditures to ensure proper budgeting, financial reporting, and compliance with accounting standards.

Question 14

The main difference between cost-benefit and cost-effectiveness analysis is in differences in how costs are measured.

Accepted Answer

The main difference lies in how benefits are measured: cost-benefit analysis measures benefits in monetary terms, while cost-effectiveness analysis measures benefits in non-monetary terms, such as health outcomes.

Question 15

For most state and local governments, the application of complex analytical tools such as cost-benefit analyses or rate-of-return analyses play a significant role in the selection of capital projects.

Accepted Answer

The answer of For most state and local governments, the...

Question 16

The operating and maintenance costs of a new facility are lower in the early years of operation.

Accepted Answer

In the early years, equipment and systems are new and less likely to require repairs or replacements, leading to lower maintenance costs.

Question 17

The main difference between the federal budget preparation of capital investment requests and state governments with capital budgets is that there is no overall federal capital investment plan or capital budget.

Accepted Answer

The federal government does not have a separate capital budget; instead, capital investments are included within the overall federal budget, unlike many state governments that maintain distinct capital budgets.

Question 18

Capital budget decisions are less political than other budget decisions.

Accepted Answer

Capital budget decisions often involve significant public funds and long-term impacts, making them subject to political influence and debate.

Question 19

Considering the return on investment (ROI), public sector investments may often be justified on the basis of nonfinancial returns if the financial return on the investment is less than an equivalent privately provided option.

Accepted Answer

Public sector investments can be justified by nonfinancial returns such as social benefits, public welfare, or environmental improvements, even if the financial ROI is lower than private sector alternatives.

Question 20

Various studies have estimated that the combined infrastructure deficit in public facilities in the United States, like water systems, schools, and highways, is several trillion dollars.

Accepted Answer

Studies and reports, such as those from the American Society of Civil Engineers, have estimated that the infrastructure deficit in the U.S. is in the trillions, highlighting the need for significant investment in public facilities.

Quiz 13: Capital Assets: Planning and Budgeting, Analysis, and Management