I85PREP
⌘ K
CPM study materials
CPM study resources

CPM practice questions

One question at a time. Build your CPM understanding.

First 50 of 200 questions. Each one lists the choices, the correct answer, and an explanation. The checker at the top of this page saves progress in this browser when it is available.

Continue in the practice tool above to load more questions, 50 at a time.

Question 1Asset management

Which activity is a core function of asset management rather than property management?

  1. Directing daily maintenance and janitorial staff
  2. Negotiating renewals with individual tenants
  3. Deciding whether to hold, reposition, or sell an asset Correct answer.
  4. Preparing monthly rent statements and tracking collections

Explanation

Asset management is strategic: it evaluates each property's contribution to the owner's investment objectives and decides whether to hold, reposition, refinance, or sell. Staffing, billing, and individual lease negotiations are operational functions carried out within the strategy set at the asset level.

Question 2Asset management

A property produces net operating income of $480,000 and is valued at $6,000,000. What overall capitalization rate does this indicate?

  1. 12.5%
  2. 9.6%
  3. 7.0%
  4. 8.0% Correct answer.

Explanation

The overall capitalization rate is net operating income divided by value: $480,000 divided by $6,000,000 equals 0.08, or 8.0%. It expresses the property's unlevered yield at the stated price.

Question 3Asset management

In the income approach, which item is deducted from effective gross income to arrive at net operating income?

  1. Annual debt service
  2. Operating expenses Correct answer.
  3. Income taxes
  4. Depreciation

Explanation

Net operating income is effective gross income less operating expenses. It is computed before debt service, income taxes, depreciation, and capital expenditures so that properties can be compared regardless of financing or ownership structure.

Question 4Asset management

Highest and best use is best described as the use that is legally permissible, physically possible, financially feasible, and:

  1. Already in place on the site
  2. Most popular with current tenants
  3. Maximally productive Correct answer.
  4. Lowest in operating cost

Explanation

Highest and best use is the reasonably probable use that satisfies four tests: legally permissible, physically possible, financially feasible, and maximally productive, meaning it produces the highest value. It may differ from the current use of the site.

Question 5Asset management

The primary purpose of a reserve study is to:

  1. Estimate the cost and timing of major component replacements Correct answer.
  2. Set the rent schedule for the coming year
  3. Establish the property's highest and best use
  4. Verify tenant compliance with lease obligations

Explanation

A reserve study inventories major building components, estimates remaining useful life and replacement cost, and calculates the annual funding needed to meet future capital needs. It lets the owner replace roof, mechanical, and paving systems without cash calls or special assessments.

Question 6Asset management

A property sells for $3,000,000 and has gross annual income of $500,000. What is the gross income multiplier?

  1. 6.0 Correct answer.
  2. 4.5
  3. 12.0
  4. 8.0

Explanation

The gross income multiplier equals sale price divided by gross annual income: $3,000,000 divided by $500,000 equals 6.0. It is a quick screening tool that ignores vacancy and expenses.

Question 7Asset management

A property generates NOI of $300,000, carries annual debt service of $200,000, and was acquired with $1,000,000 of equity. What is the equity dividend rate?

  1. 5.0%
  2. 20.0%
  3. 10.0% Correct answer.
  4. 8.3%

Explanation

The equity dividend rate, or cash-on-cash return, is before-tax cash flow divided by equity invested. NOI of $300,000 less debt service of $200,000 leaves $100,000; $100,000 divided by $1,000,000 equals 10.0%.

Question 8Asset management

A property has NOI of $250,000 and annual debt service of $200,000. What is the debt coverage ratio?

  1. 1.00
  2. 1.25 Correct answer.
  3. 0.80
  4. 1.20

Explanation

The debt coverage ratio is NOI divided by annual debt service: $250,000 divided by $200,000 equals 1.25. Lenders use it to measure how much income cushion exists if operations weaken.

Question 9Asset management

Positive leverage on a real estate investment exists when:

  1. The asset's cap rate exceeds the mortgage interest rate Correct answer.
  2. The loan amortizes rather than being interest-only
  3. The mortgage constant exceeds the asset's cap rate
  4. Vacancy is below the submarket average

Explanation

Positive leverage occurs when the return earned on the property exceeds the cost of mortgage funds, so borrowing raises the return on equity. When the borrowing cost or mortgage constant exceeds the cap rate, leverage is neutral or negative.

Question 10Asset management

Under a net present value analysis, an asset manager should recommend proceeding with a capital project when:

  1. The internal rate of return is below the investor's required return
  2. The undiscounted sum of the cash flows exceeds the project cost
  3. The discounted present value of the cash flows exceeds the project cost Correct answer.
  4. The payback period is shorter than the loan term

Explanation

The NPV rule accepts a project when the present value of its expected cash flows, discounted at the investor's required return, exceeds its cost. A positive NPV means the project earns more than the required return and adds value.

Question 11Asset management

In a hold-versus-sell analysis, the key comparison is:

  1. The asset's NOI per square foot with the portfolio average
  2. The outstanding loan balance with the original loan amount
  3. The asset's current cap rate with its cap rate at acquisition
  4. The hold-period IRR with the return on redeploying the proceeds Correct answer.

Explanation

A hold/sell decision is an opportunity cost comparison: the IRR from continuing to own is weighed against the return the owner could earn by selling and reinvesting the net proceeds in a similar-risk asset. The option with the better risk-adjusted return is preferred.

Question 12Asset management

Effective gross income is calculated as:

  1. Potential gross income less operating expenses and reserves
  2. Potential gross income less vacancy and collection loss plus other income Correct answer.
  3. Net operating income plus annual debt service and reserves
  4. Potential gross income plus other income, before vacancy is deducted

Explanation

Effective gross income starts with potential gross income, subtracts vacancy and collection loss, and adds other income such as parking, fees, and percentage rent. Operating expenses are then deducted from effective gross income to reach NOI.

Question 13Asset management

A property shows rents that have plateaued, stable occupancy, and rising capital needs as its systems age. This property is most likely in which phase of its life cycle?

  1. Revitalization
  2. Maturity Correct answer.
  3. Decline
  4. Growth

Explanation

In maturity, occupancy has stabilized and rents have leveled off while physical systems begin to wear, so capital needs grow relative to income. Growth brings rising rents and occupancy, decline brings falling occupancy and rents, and revitalization follows reinvestment.

Question 14Asset management

Under a base-year stop lease, the tenant pays:

  1. Its proportionate share of expenses above the base-year amount Correct answer.
  2. Only those expense categories the landlord elects to pass through
  3. A negotiated flat fee in lieu of actual expenses
  4. Its full proportionate share of all operating expenses incurred

Explanation

In a base-year stop lease, the landlord absorbs expenses up to the base-year level and the tenant pays its proportionate share of any excess over that stop. This protects the owner from inflation-driven expense increases during the term.

Question 15Asset management

Replacing a building's chiller with a new unit that has a twenty-year expected life is best classified as:

  1. A leasing cost amortized over the lease term
  2. A tenant improvement allowance
  3. A recoverable operating expense
  4. A capital expenditure funded from reserves Correct answer.

Explanation

A chiller replacement extends the life of the asset, so it is capitalized and funded from reserves or a capital budget and is excluded from NOI. Only recurring costs of operating the building are treated as operating expenses.

Question 16Asset management

An asset manager wants to compare the operating performance of an 80,000 square foot office building with a 220,000 square foot office building. The most meaningful comparison is:

  1. Gross potential rent per unit of rentable area
  2. Net operating income per rentable square foot Correct answer.
  3. Total annual operating expenses
  4. Total annual net operating income

Explanation

Dividing NOI by rentable square footage normalizes for size so assets of different scale can be compared on the same basis. Total dollar amounts mostly reflect building size rather than operating skill.

Question 17Asset management

An investor projects year-one NOI of $120,000 growing 3% annually and plans to sell at the end of year five at a 7.0% cap rate applied to year-six NOI. Ignoring selling costs, the projected sale price is closest to:

  1. $2,140,000
  2. $1,987,000 Correct answer.
  3. $1,929,000
  4. $1,714,000

Explanation

A reversion is priced off the income expected in the year after the sale. Year-six NOI equals $120,000 times 1.03 raised to the fifth power, or about $139,113; capitalizing that at 7.0% gives roughly $1,987,000.

Question 18Asset management

An asset manager comparing a property's tax return with its operating statement finds that taxable income is lower than before-tax cash flow. The most likely reason is that:

  1. Depreciation reduces taxable income without a cash outlay Correct answer.
  2. Principal amortization on the mortgage is deductible for tax purposes
  3. Capital expenditures are fully deducted in the year they are incurred
  4. Reserves for replacements are deducted for tax purposes but not from NOI

Explanation

Depreciation is a tax allowance that reduces taxable income but requires no cash payment, so taxable income can fall below before-tax cash flow. Cash flow instead reflects actual receipts and outlays during the period.

Question 19Asset management

A $200,000 lobby renovation is expected to increase annual NOI by $30,000, and market capitalization rates are 7.0%. Ignoring costs of sale and downtime, the net value created by the renovation is closest to:

  1. $228,600 Correct answer.
  2. $30,000
  3. $428,600
  4. $200,000

Explanation

Capitalizing the incremental income at the market rate gives the gross value added: $30,000 divided by 0.07 is about $428,600. Subtracting the $200,000 cost leaves net value created of roughly $228,600, which justifies the project.

Question 20Asset management

An asset manager seeking to lower the risk of a real estate portfolio primarily through diversification should:

  1. Increase leverage on each asset to raise expected returns
  2. Hold assets whose returns are not highly correlated Correct answer.
  3. Concentrate holdings in the strongest-performing submarket
  4. Acquire properties with the shortest possible lease terms

Explanation

Diversification works because combining assets whose returns do not move together lowers overall volatility for a given level of expected return. Correlated holdings in one market leave the portfolio exposed to a single cycle.

Question 21Finance

Which fund is used to account for a government's core operating resources when no other fund is required by law or policy?

  1. General Fund Correct answer.
  2. Debt Service Fund
  3. Enterprise Fund
  4. Special Revenue Fund

Explanation

The General Fund captures all resources not required to be accounted for in another fund and is the chief operating fund of the government. Other fund types are used only when a specific legal restriction or business-type activity dictates it.

Question 22Finance

Governmental funds are accounted for using which basis of accounting?

  1. Regulatory basis
  2. Full accrual
  3. Modified accrual Correct answer.
  4. Cash basis

Explanation

Governmental funds use modified accrual: revenues are recognized when measurable and available, and expenditures when the liability is expected to be liquidated with current financial resources. Full accrual applies to proprietary funds, fiduciary funds, and the government-wide statements.

Question 23Finance

A budget that presents spending by detailed object of expenditure, such as salaries, supplies, and travel, is best described as a:

  1. Performance budget
  2. Zero-based budget
  3. Line-item budget Correct answer.
  4. Program budget

Explanation

A line-item (object-of-expenditure) budget lists inputs by detailed category, which maximizes spending control and comparability across years. It says little, however, about what programs accomplish.

Question 24Finance

A legal commitment of appropriated funds recorded at the time a purchase order or contract is issued, before goods or services are received, is called:

  1. A disbursement
  2. An allotment
  3. An encumbrance Correct answer.
  4. An appropriation

Explanation

An encumbrance reserves part of an appropriation so the commitment cannot be overspent, making available balance equal to appropriation minus expenditures minus encumbrances. It is released when the goods arrive and the actual expenditure is recorded.

Question 25Finance

Which body establishes authoritative generally accepted accounting principles for state and local governments in the United States?

  1. IASB
  2. FASB
  3. GASB Correct answer.
  4. FASAB

Explanation

The Governmental Accounting Standards Board issues GAAP for state and local governments. FASB serves private-sector entities, FASAB serves the federal government, and IASB issues international standards.

Question 26Finance

Resources accumulated to repay principal and interest on a government's long-term general obligation debt are accounted for in the:

  1. Capital Projects Fund
  2. Permanent Fund
  3. Special Revenue Fund
  4. Debt Service Fund Correct answer.

Explanation

Debt Service Funds segregate resources legally set aside for principal and interest on long-term general obligation debt. Capital Projects Funds track construction, while Permanent Funds hold endowments whose principal cannot be spent.

Question 27Finance

Fund balance that is constrained by a formal action of the governing body, such as an ordinance, and can be changed only by that same body's action is classified as:

  1. Committed Correct answer.
  2. Restricted
  3. Nonspendable
  4. Assigned

Explanation

GASB 54 ranks constraints by their source: external parties create restricted amounts, the government's highest decision-making body creates committed amounts, and management intent creates assigned amounts. Committed fund balance requires formal action for both creation and removal.

Question 28Finance

A fund that provides goods or services to other departments of the same government on a cost-reimbursement basis, such as a central motor pool, is:

  1. A special revenue fund
  2. A fiduciary agency fund
  3. An enterprise fund
  4. Internal service fund Correct answer.

Explanation

Internal service funds are proprietary funds that serve predominantly internal customers and recover costs through charges to those departments. Enterprise funds perform similar activities but sell to the public.

Question 29Finance

General obligation bonds differ from revenue bonds primarily because GO bonds:

  1. They always carry a lower interest rate than comparable revenue bonds
  2. They require voter approval in every state before they may be sold
  3. They are repaid solely from the revenues generated by the financed project
  4. They pledge the issuer's full faith, credit, and taxing power Correct answer.

Explanation

General obligation debt is secured by the issuer's unlimited or limited taxing power, so repayment does not depend on a single project's cash flow. Revenue bonds are secured only by pledged project revenues and typically carry higher yields to reflect that narrower security.

Question 30Finance

In governmental funds, property tax revenue is recognized in the period for which it is levied when the amount is:

  1. Measurable and available Correct answer.
  2. Certified by the county assessor
  3. Collected in cash
  4. Levied by the governing body

Explanation

Under modified accrual, revenue is recognized when it is both measurable and available to liquidate liabilities of the current period. Many governments define available for property taxes as collected within 60 days after year-end.

Question 31Finance

A budget approach in which every expenditure, including ongoing base activities, must be justified from zero in each cycle is called:

  1. Zero-based budgeting Correct answer.
  2. Incremental budgeting
  3. Program budgeting
  4. Line-item budgeting

Explanation

Zero-based budgeting builds decision packages from a zero base and ranks them by priority, so no cost is automatically carried forward. It is analytically demanding and therefore often used periodically rather than every year.

Question 32Finance

A government will receive $500,000 exactly one year from today. At a discount rate of 5 percent, the present value of that amount is closest to:

  1. $450,000
  2. $525,000
  3. $476,190 Correct answer.
  4. $500,000

Explanation

Present value equals future value divided by one plus the discount rate raised to the number of periods: $500,000 / 1.05 = $476,190. Discounting shows that a dollar received later is worth less than a dollar today.

Question 33Finance

Which capital financing approach transfers design, construction, and often long-term operating risk to a private partner under a single contract?

  1. Pay-as-you-go from current revenues
  2. A general obligation bond issue
  3. A public-private partnership Correct answer.
  4. An interfund loan from the general fund

Explanation

In a public-private partnership the private party designs, finances, builds, and frequently operates the asset for a defined term, bearing risks in exchange for availability payments or user revenue. Traditional procurement and tax-supported debt leave those risks with the government.

Question 34Finance

Under GASB 68, a governmental employer's proportionate share of the net pension liability is reported on which statement?

  1. The governmental funds balance sheet only
  2. The budgetary comparison statement
  3. The statement of net position Correct answer.
  4. The combining statement of cash flows

Explanation

GASB 68 requires the net pension liability to be recognized in the government-wide statement of net position and in proprietary fund statements. Governmental fund statements report only the pension contribution payable, not the long-term liability.

Question 35Finance

Which arrangement best illustrates segregation of duties in a purchasing and payment process?

  1. Having one clerk both approve payments and enter them in the ledger
  2. Using a petty cash fund for small purchases below a set threshold
  3. Separating approval authority from custody and recordkeeping Correct answer.
  4. Requiring the finance director to sign all checks and reconcile the bank statement

Explanation

Segregation of duties divides authorization, custody of assets, and recordkeeping among different people so no single person can both cause and conceal an error or fraud. Combining any two of these functions weakens the control.

Question 36Finance

An expenditure line shows $120,000 budgeted and $132,000 actual. How should the variance be reported?

  1. 10% favorable
  2. $12,000 unfavorable Correct answer.
  3. 9.1% unfavorable
  4. $12,000 favorable

Explanation

For an expenditure line, spending more than budget is adverse, so the variance is $12,000 unfavorable. The percentage is calculated on the budget base: $12,000 / $120,000 = 10 percent.

Question 37Finance

In the government-wide statements required by GASB 34, capital assets and long-term liabilities are reported using which measurement focus and basis of accounting?

  1. Current financial resources focus and modified accrual
  2. Economic resources focus and full accrual Correct answer.
  3. Current financial resources focus and full accrual
  4. Economic resources focus and modified accrual

Explanation

GASB 34 requires government-wide statements to report all capital assets net of depreciation and all long-term liabilities using the economic resources measurement focus and full accrual. The fund statements continue to use the current financial resources focus and modified accrual for governmental funds.

Question 38Finance

When proceeds of a tax-exempt bond issue are invested at a yield higher than the bond yield, the resulting arbitrage earnings generally must be:

  1. Deposited in a debt service reserve fund until final maturity
  2. Rebated to the U.S. Treasury unless an exception applies Correct answer.
  3. Applied solely to pay costs of issuing the bonds
  4. Retained by the issuer for general governmental purposes

Explanation

Arbitrage earnings on tax-exempt bond proceeds are subject to a rebate requirement that recaptures the spread for the federal government. Spending exceptions, a small-issuer exception, and certain other safe harbors can eliminate or reduce the rebate liability.

Question 39Finance

An internal service print shop has fixed costs of $200,000 per year and variable cost of $0.04 per page. If it charges $0.06 per page, how many pages must it produce to break even?

  1. 5,000,000 pages
  2. 10,000,000 pages Correct answer.
  3. 2,000,000 pages
  4. 3,333,333 pages

Explanation

Contribution margin per page is $0.06 minus $0.04, or $0.02. Break-even volume equals fixed costs divided by contribution margin: $200,000 / $0.02 = 10,000,000 pages.

Question 40Finance

A legally separate organization is presented as a discretely presented component unit rather than blended with the primary government when:

  1. Its governing board is substantively the same as the primary government's
  2. It is a building authority that finances construction solely for the primary government
  3. It serves a broad citizenry and has a separately elected board Correct answer.
  4. It provides services entirely or almost entirely to the primary government

Explanation

Blending treats a component unit as if it were part of the primary government, which is appropriate only when the boards are substantively the same or the unit serves almost exclusively the primary government. Otherwise the unit is shown in a separate discrete column because it serves a broader constituency.

Question 41Human resources

According to Tuckman's model of team development, in which stage do members typically depend on the project manager for direction and test the boundaries of acceptable behavior?

  1. Storming
  2. Norming
  3. Performing
  4. Forming Correct answer.

Explanation

Tuckman's model moves through forming, storming, norming, performing, and adjourning. Forming is the orientation stage, when members are polite, dependent on the leader for direction, and unsure of boundaries.

Question 42Human resources

On a RACI chart for a specific project activity, how many people should be assigned the 'Accountable' role?

  1. As many as are needed
  2. At least two people
  3. Exactly one person Correct answer.
  4. Only the project sponsor

Explanation

Accountability means ultimate ownership of an activity's outcome and should rest with one person. Responsibility, consultation, and information can be shared among several people.

Question 43Human resources

Which of the following is a hygiene factor in Herzberg's two-factor theory?

  1. Achievement of challenging goals
  2. Salary and working conditions Correct answer.
  3. Responsibility for new tasks
  4. Recognition from senior management

Explanation

Hygiene factors, such as pay, working conditions, company policy, and supervision, prevent dissatisfaction when adequate but do not create motivation. Motivators such as achievement, recognition, responsibility, and growth drive satisfaction.

Question 44Human resources

In a strong matrix organization, which role typically holds the greatest authority over project budget and resource assignments?

  1. The project manager Correct answer.
  2. The project coordinator
  3. The PMO director
  4. The functional manager

Explanation

In a strong matrix, the project manager has considerable authority, including control of the project budget and resource assignments. The functional manager retains technical and administrative authority over staff.

Question 45Human resources

What is the primary purpose of a team charter?

  1. To record the schedule network and its critical path
  2. To define the approved scope baseline and acceptance criteria
  3. To document lessons learned for future projects
  4. To set operating agreements, values, and decision rules Correct answer.

Explanation

A team charter records ground rules, values, communication norms, decision-making rules, and conflict-handling agreements for the team. It is a team-level document and does not authorize scope or schedule baselines.

Question 46Human resources

Which conflict-handling approach aims for a win-win outcome by openly addressing the concerns of all parties?

  1. Collaborating Correct answer.
  2. Avoiding
  3. Accommodating
  4. Compromising

Explanation

Collaborating, also called problem-solving, seeks a win-win outcome by openly addressing the concerns of all parties. Compromising only partially satisfies each party, while accommodating and avoiding yield or withdraw.

Question 47Human resources

A project manager has a resource overload in weeks 5-8 that cannot be resolved using available float without moving the project end date. Which technique is most appropriate?

  1. Crashing the critical path
  2. Fast tracking non-critical activities
  3. Resource smoothing
  4. Resource leveling Correct answer.

Explanation

Resource leveling is used when resource availability or limits require start and finish dates to change, and it may extend the project end date. Resource smoothing uses only available float and does not change the critical path.

Question 48Human resources

A project team is distributed across five time zones. Which action most directly improves team performance?

  1. Replacing written project records with informal chat messages
  2. Requiring all members to join a daily stand-up at headquarters time
  3. Routing all team communication through the project manager for clarity
  4. Setting explicit communication protocols and fair meeting times Correct answer.

Explanation

Distributed teams perform better with explicit norms for response times, communication channels, documentation, and meeting schedules that share the time-zone burden. These agreements reduce ambiguity and perceived inequity.

Question 49Human resources

When should a project manager establish team ground rules?

  1. Only after a serious conflict occurs
  2. Whenever the project sponsor requests them
  3. During the closure phase of the project
  4. At the first team meeting, before conflicts arise Correct answer.

Explanation

Ground rules are preventive agreements about behavior, communication, and participation, and they are best established early in the forming stage. They should be revisited as the team develops and new issues arise.

Question 50Human resources

A project manager wants to recognize team members for unusually long overtime during a deadline crunch. Which approach reflects good practice?

  1. Give a large bonus at project close only to the single top individual performer
  2. Reward desired behaviors that all contributors can achieve Correct answer.
  3. Publicly reward whoever logged the most overtime hours during the crunch period
  4. Reward only the team members whom the project manager works with most closely

Explanation

Recognition and rewards should be tied to desired behaviors, visible, achievable by contributors, and applied consistently. Rewarding raw overtime can encourage burnout and poor estimating rather than the intended behavior.