CFM Exam Dumps | The finance director has asked the facility manager to prepare a financial analysis comparing two alternatives

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Question 24/122

The finance director has asked the facility manager to prepare a financial analysis comparing two alternatives for roofing system replacements. Each option has a different first cost, annual maintenance, and expected useful life. Which capital investment analysis technique would best consider the time value of money in the comparison?

A. Benchmarking

B. Payback

C. Net Present Value

Correct Answer: C

Net Present Value (NPV) (Option C) is the best financial analysis method for comparing investments while considering the time value of money.
Why Option C is Correct?
* NPV accounts for the future cash flows of an investment, adjusted for inflation and discount rates.
* It helps FM professionals compare long-term financial impacts and determine the most cost- effective solution.
* IFMA's Finance & Business Core Competency requires FM leaders to use NPV for capital investment decisions.
Why Other Options Are Incorrect?
* Option A (Benchmarking): Benchmarking compares performance and best practices, but does not consider financial time value.
* Option B (Payback): Payback period only measures how quickly an investment recoups costs, but ignores future cash flows.

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