CIPS L6M5 Exam Practice Test Instant Access

Question 1

The Royal Institute of Chartered Surveyors and the Royal Institute of British Architects are two founding members of which organisation that creates contracts for the construction industry?

AInstitution of Mechanical Engineers

BJoint Contracts Tribunal

CInternational Federation of Consulting Engineers

DNew Engineering Contract

Answer : B

The Joint Contracts Tribunal (JCT) is the organisation with these founding members.

Question 2

Green Thumb Ltd, a landscaping company, is considering investing in a new lawn mower costing 10,000. The CFO estimates that the new machinery would increase annual income by approximately 2,000. What is the payback period of the investment?

A20%

B10 years

C5 years

D8,000

Answer : C

Payback period = Investment Cost Annual Cash Flow = 10,000 2,000 = 5 years.

Question 3

When is a cost-plus pricing arrangement most likely to be used?

Answer Options:

AIn low-risk, low-value purchases

BWhere there is a low level of trust between supplier and buyer

CIn high-risk environments

DIn international transactions

Answer : C

Cost-plus pricing is best suited for high-risk environments (p.93), such as fluctuating commodity markets. It reduces risk for suppliers by allowing cost adjustments based on actual expenses plus a margin. Option A is incorrect because low-risk projects favor fixed pricing. [P.93]

Question 4

Which of the following is an advantage to the contractor in an EPC contract arrangement?

EPC contracts provide several benefits to contractors, such as clear project scope, reduced risks, and better project management.

Answer Options:

AThe scope is clearly defined by the client

BThere is an early completion bonus

CThere are no subcontractors to manage

DThe client assumes all risks for the construction

Answer : A

The correct answer is 1 (p.13). The scope is clearly defined by the client, making it easier for the contractor to plan and execute the project efficiently. Option 2 is incorrect because not all EPC contracts offer an early completion bonus. Option 3 is incorrect because EPC contracts can include subcontractors. Option 4 is incorrect because risks are shared between the client and contractor. [P.13]

Question 5

Scenario (same as Question 16):

What type of power does the CFO have at Fin Inc?

Apositional power

Bexpert power

Cpersonal power

Dnegative power

Answer : C

The CFO is well-liked and uses personal influence (charisma) rather than authority based solely on position.

Question 6

Fred is comparing two possible projects that will last for different durations.

His company can only select one project due to financial constraints.

He needs a method to compare the financial benefits of both projects.

Q: Is a payback analysis a useful tool for Fred to use?

Answer Options:

AYes -- this will account for the difference in duration of the two projects

BNo -- this will not account for the difference in duration of the two projects

CYes -- this will provide Fred with a rate of return that is useful to accurately forecast profits

DNo -- there is no formula to calculate this, and a discount factor must be used

Answer : A

A Payback Analysis (p.72) calculates how long it takes for a project to recover its initial investment. It accounts for project duration but does not provide a rate of return (Option C). Discount factors (Option D) are used in Net Present Value (NPV) analysis, not Payback Analysis. [P.72]

Question 7

Scenario (same as Question 16):

Which type of contract would be the most suitable for working with the new client?

AJCT

BFIDIC

CIMechE

DNEC

Answer : D

The NEC contract is known for its flexibility and collaborative approach, matching the client's requirements.

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