CAFM Financial Management 2 — Questions and Answers
Question 1: Which depreciation method results in the highest book value at the end of an asset's useful life if the asset has a residual value?
- Straight-line depreciation (Correct answer)
- Double declining balance
- Sum-of-the-years-digits
- MACRS depreciation
Correct answer: Straight-line depreciation
Straight-line depreciation spreads cost evenly and stops at residual value, preserving the highest book value compared to accelerated methods.
Question 2: A fleet manager is evaluating two vehicles: Vehicle A has a 5-year TCO of $85,000 and Vehicle B has a 5-year TCO of $78,000. What additional factor should be considered before making a final decision?
- Manufacturer brand reputation
- Residual value and remarketing potential at end of cycle (Correct answer)
- Driver preference surveys
- Paint color availability
Correct answer: Residual value and remarketing potential at end of cycle
Residual value directly affects the net cost of ownership and must be factored into TCO comparisons to identify the true least-cost option.
Question 3: What is the primary purpose of a fleet charge-back system?
- To penalize drivers for accidents
- To allocate vehicle operating costs to the departments that use them (Correct answer)
- To collect fines from traffic violations
- To recover costs from insurance claims
Correct answer: To allocate vehicle operating costs to the departments that use them
A charge-back system allocates fleet costs to user departments, promoting cost accountability and accurate departmental budgeting.
Question 4: When calculating a vehicle's break-even mileage for replacement, which cost relationship is being analyzed?
- Fixed costs versus variable costs (Correct answer)
- Insurance costs versus fuel costs
- Acquisition costs versus maintenance costs
- Depreciation versus resale value
Correct answer: Fixed costs versus variable costs
Break-even mileage analysis compares fixed ownership costs against variable operating costs to determine the optimal replacement point.
Question 5: A fleet department receives a budget variance report showing a 15% unfavorable fuel variance. What is the most appropriate first step?
- Immediately replace all high-consumption vehicles
- Analyze the cause by reviewing fuel consumption data, pricing changes, and mileage (Correct answer)
- Reduce the department's fuel budget for next year
- Implement a fuel card freeze
Correct answer: Analyze the cause by reviewing fuel consumption data, pricing changes, and mileage
Root cause analysis of fuel variance data is required before taking corrective action to determine whether the issue is price-driven, consumption-driven, or mileage-driven.
Question 6: Which financial metric best measures how efficiently a fleet asset generates revenue relative to its total cost?
- Net Present Value (NPV)
- Return on Investment (ROI) (Correct answer)
- Payback period
- Book value ratio
Correct answer: Return on Investment (ROI)
ROI measures the financial return generated by the fleet asset relative to its total cost, indicating how efficiently capital is deployed.
Question 7: Under a full-service lease arrangement, who typically bears responsibility for vehicle maintenance costs?
- The fleet operator/lessee
- The driver assigned to the vehicle
- The lessor/leasing company (Correct answer)
- The vehicle manufacturer
Correct answer: The lessor/leasing company
In a full-service lease, the lessor bundles maintenance, repairs, and other services into the lease payment, assuming those cost responsibilities.
CAFM Financial Management 2
Which depreciation method results in the highest book value at the end of an asset's useful life if the asset has a residual value?