GFMC Exam Dumps - AGA Government Financial Manager Questions and Answers

 What Are We Solving For?

We are determining the present value (PV) of a $500,000 lump sum payment to be received in 10 years, using anopportunity rate of 12%. Inflation is not relevant here because the opportunity rate already reflects the expected return, including inflation adjustments.

 Formula for Present Value:

The present value (PV) is calculated using the formula:

PV=FV(1+r)nPV = \frac{FV}{(1 + r)^n}PV=(1+r)nFV​

Where:

FVFVFV = Future Value = $500,000

rrr = Opportunity rate = 12% or 0.12

nnn = Number of years = 10

 Calculation:

PV=500,000(1+0.12)10PV = \frac{500,000}{(1 + 0.12)^{10}}PV=(1+0.12)10500,000​ PV=500,000(1.12)10PV = \frac{500,000}{(1.12)^{10}}PV=(1.12)10500,000​ PV=500,0003.10585PV = \frac{500,000}{3.10585}PV=3.10585500,000​ PV≈160,986PV ≈ 160,986PV≈160,986

 Why Inflation Is Not Included:

The opportunity rate already incorporates the expected inflation. Using it ensures the PV reflects the real purchasing power of the future lump sum payment.

 Why Other Options Are Incorrect:

B. $186,023, C. $440,000, D. $485,000:These values result from incorrect calculations or the misuse of inflation in the formula.

 References and Documents:

GAO Financial Analysis Guide:Recommends using present value calculations with opportunity rates for investment decision-making.

AICPA Financial Management Guide:Provides detailed examples of calculating present value for lump sum payments.

GAO and External Audit Standards:The Government Accountability Office (GAO) uses the Yellow Book as its primary standard. However, it may also reference external standards from recognized international and professional auditing organizations. INTOSAI is specifically mentioned in the Yellow Book as a source of additional standards for governmental audits.

Explanation of Answer Choices:

A. Public Company Accounting Oversight Board (PCAOB): This regulates audits of publicly traded companies, not government entities.

B. International Auditing and Assurance Standards Board (IAASB): This focuses on global private-sector audits, not specifically government-related.

C. International Organization of Supreme Audit Institutions (INTOSAI): Correct. INTOSAI sets audit standards for public-sector auditors worldwide and is relevant for the GAO.

D. AICPA: While the AICPA sets standards for U.S. auditors, INTOSAI is more relevant for international public-sector audits.

 Why Select the Lowest Qualified Bidder?

Procurement rules in government require selecting thelowest qualified bidderto ensure fairness, cost-efficiency, and compliance with procurement regulations.

If the mayor’s high school classmate’s company meets the qualification criteria and provides the lowest bid, there is no conflict of interest unless favoritism or improper influence is proven.

 Why Other Options Are Incorrect:

B. Second lowest priced qualified bidder:Selecting the second lowest bidder without justification violates the principle of fairness and cost-efficiency.

C. Third lowest bidder pending state disbarment:This vendor is not a qualified bidder due to pending disbarment.

D. Highest priced qualified bidder with the highest quality products:If quality specifications are already met by lower bidders, selecting the highest-priced bidder is unjustifiable.

 References and Documents:

Federal Acquisition Regulation (FAR):Requires selecting the lowest qualified bidder.

GAO Guide on Procurement Standards:Emphasizes fairness and cost-effectiveness in vendor selection.

Purpose of the Analysis:A finance director needs to assess whether the organization has enough funds available to cover short-term obligations (bills due within 30 days). This requires evaluating liquidity.

Explanation of Key Ratios:

Quick/Current Ratio: Measures an entity’s ability to pay its short-term liabilities using liquid assets.

Current Ratio= Current Assets ÷ Current Liabilities.

Quick Ratioexcludes less liquid assets (e.g., inventory), focusing on assets that can quickly convert to cash.This is the appropriate measure for assessing immediate liquidity.

Receivables Turnover Ratio: Measures how efficiently receivables are collected but doesn’t directly evaluate liquidity for bills due within 30 days.

Budgetary Cushion Ratio: Refers to financial reserves relative to annual spending, not short-term liquidity.

Debt Burden Ratio: Evaluates debt relative to revenues but does not address immediate cash flow needs.