CAFM Fleet Financial Management 2 — Questions and Answers
Question 1: A fleet manager is evaluating whether to replace a vehicle at 80,000 miles or hold it to 120,000 miles. Which financial concept best guides this decision?
- Depreciation schedule
- Optimum replacement point (Correct answer)
- Residual value calculation
- Break-even analysis
Correct answer: Optimum replacement point
The optimum replacement point is the mileage or age at which the total cost of ownership (including maintenance escalation) is minimized, guiding replacement timing.
Question 2: Which metric measures how efficiently a fleet operation converts revenue into profit by tracking costs as a percentage of income?
- Return on assets
- Operating ratio (Correct answer)
- Net present value
- Cost per mile
Correct answer: Operating ratio
The operating ratio (operating expenses ÷ operating revenue × 100) measures operational efficiency; a lower ratio indicates better profitability.
Question 3: A fleet's vehicle costs $45,000 new and has a projected residual value of $9,000 after 5 years. What is the straight-line annual depreciation?
- $7,200 (Correct answer)
- $9,000
- $8,000
- $6,000
Correct answer: $7,200
Straight-line depreciation = (Cost − Residual) ÷ Years = ($45,000 − $9,000) ÷ 5 = $7,200 per year.
Question 4: When comparing a lease versus purchase decision, which cost is unique to a purchase arrangement that does not appear in a lease payment?
- Fuel surcharge
- Opportunity cost of capital (Correct answer)
- Insurance premium
- Maintenance reserve
Correct answer: Opportunity cost of capital
Purchasing ties up capital, creating an opportunity cost (the return that capital could have earned elsewhere) that is absent in a lease structure.
Question 5: A fleet manager implements a chargeback system that bills each department for its vehicle usage. The primary benefit of this approach is:
- Reducing total fleet size automatically
- Improving cost visibility and accountability by department (Correct answer)
- Eliminating the need for a fleet budget
- Lowering insurance premiums across the fleet
Correct answer: Improving cost visibility and accountability by department
Chargeback systems allocate fleet costs to the departments that incur them, creating transparency and incentivizing responsible vehicle use.
Question 6: Under GAAP, when a company purchases a fleet vehicle, how is the acquisition typically recorded on the balance sheet?
- As a current liability
- As an operating expense in the period purchased
- As a long-term asset subject to depreciation (Correct answer)
- As deferred revenue
Correct answer: As a long-term asset subject to depreciation
Fleet vehicles are capitalized as long-term (fixed) assets on the balance sheet and depreciated over their useful life under GAAP.
Question 7: Which type of fleet lease transfers substantially all risks and rewards of ownership to the lessee and must be recorded on the lessee's balance sheet under ASC 842?
- Operating lease
- Finance lease (Correct answer)
- Open-end lease
- Net lease
Correct answer: Finance lease
Under ASC 842, a finance lease (formerly capital lease) transfers ownership risks to the lessee and requires recognition of both a right-of-use asset and a lease liability.
CAFM Fleet Financial Management 2
A fleet manager is evaluating whether to replace a vehicle at 80,000 miles or hold it to 120,000 miles.
Which financial concept best guides this decision?