CAFM Fleet Financial Management 3 — Questions and Answers
Question 1: A fleet manager notices that fixed costs remain constant regardless of fleet utilization. Which of the following is a fixed fleet cost?
- Fuel expense
- Tire replacement
- Vehicle depreciation (Correct answer)
- Tolls and parking fees
Correct answer: Vehicle depreciation
Depreciation is a fixed cost because it accrues by time (or a set schedule) regardless of how many miles the vehicle is driven.
Question 2: In fleet financial analysis, what does the term 'lifecycle cost' encompass?
- Only the purchase price and depreciation
- All costs from acquisition through disposal including fuel, maintenance, and financing (Correct answer)
- Annual insurance and registration fees only
- Residual value minus purchase price
Correct answer: All costs from acquisition through disposal including fuel, maintenance, and financing
Lifecycle cost (total cost of ownership) includes every cost incurred from vehicle acquisition through final disposal, giving a complete financial picture.
Question 3: Which financial analysis method discounts future cash flows back to today's value to evaluate a fleet investment?
- Payback period analysis
- Net present value (NPV) (Correct answer)
- Simple return on investment
- Cost per mile calculation
Correct answer: Net present value (NPV)
NPV discounts all future cash inflows and outflows to present value using a discount rate, allowing comparison of fleet investment alternatives.
Question 4: A fleet manager is preparing a zero-based budget. What distinguishes this from a traditional incremental budget?
- It uses last year's figures plus an inflation factor
- Every expense must be justified from scratch regardless of prior year spending (Correct answer)
- It focuses only on capital expenditures
- It is based solely on mileage projections
Correct answer: Every expense must be justified from scratch regardless of prior year spending
Zero-based budgeting requires justification for all expenditures anew each cycle, eliminating automatic carryover of prior-year costs.
Question 5: When a fleet vehicle is sold at auction for more than its book value, the difference is classified as:
- Operating revenue
- A gain on sale of asset (Correct answer)
- Depreciation recapture only
- Deferred income
Correct answer: A gain on sale of asset
Proceeds exceeding book value at disposal create a gain on sale of asset, which may be subject to taxes including depreciation recapture.
Question 6: A fleet manager needs to justify a telematics investment to the CFO. The most persuasive financial argument would focus on:
- The number of GPS units installed
- Quantified ROI through fuel savings, reduced accidents, and lower maintenance costs (Correct answer)
- The vendor's market share in telematics
- Employee satisfaction with navigation features
Correct answer: Quantified ROI through fuel savings, reduced accidents, and lower maintenance costs
CFOs respond to quantified financial returns; demonstrating measurable cost reductions from telematics data makes the strongest business case.
Question 7: Which IRS depreciation method allows fleet managers to deduct a larger portion of a vehicle's cost in the early years of ownership?
- Straight-line depreciation
- Modified Accelerated Cost Recovery System (MACRS) (Correct answer)
- Units-of-production method
- Sum-of-the-years-digits (for standard fleet)
Correct answer: Modified Accelerated Cost Recovery System (MACRS)
MACRS is the IRS-mandated depreciation system for U.S. tax purposes and uses accelerated rates, providing larger deductions in early years.
CAFM Fleet Financial Management 3
A fleet manager notices that fixed costs remain constant regardless of fleet utilization.
Which of the following is a fixed fleet cost?