CAFM Financial Management 3 — Questions and Answers
Question 1: What does a fleet's 'cost per mile' metric fail to capture that 'cost per unit of work' would better reflect?
- Fuel expenditures
- Productivity and mission effectiveness of each vehicle (Correct answer)
- Driver salary allocations
- Insurance premium differences
Correct answer: Productivity and mission effectiveness of each vehicle
Cost per unit of work ties fleet expense to actual output (deliveries, service calls), revealing productivity differences that mileage alone cannot show.
Question 2: Which of the following is an example of a capital expenditure (CapEx) in fleet management?
- Monthly fuel purchases
- Purchasing a new service vehicle outright (Correct answer)
- Annual insurance premiums
- Routine oil change services
Correct answer: Purchasing a new service vehicle outright
Purchasing a vehicle outright is a capital expenditure because it acquires a long-term asset that is depreciated over its useful life.
Question 3: A fleet manager wants to justify adding one maintenance technician. Which financial document would best support this request?
- Vehicle acquisition cost schedule
- Cost-benefit analysis comparing technician salary to outsourced repair costs (Correct answer)
- Fleet insurance renewal summary
- Vehicle registration fee schedule
Correct answer: Cost-benefit analysis comparing technician salary to outsourced repair costs
A cost-benefit analysis quantifies the financial return of adding in-house staff versus continuing to outsource, providing the justification leadership needs.
Question 4: Which term describes the interest rate that makes the net present value of all cash flows from a fleet investment equal to zero?
- Discount rate
- Internal Rate of Return (IRR) (Correct answer)
- Weighted Average Cost of Capital
- Effective Annual Rate
Correct answer: Internal Rate of Return (IRR)
The Internal Rate of Return (IRR) is the break-even discount rate at which an investment's NPV equals zero, used to compare investment attractiveness.
Question 5: A zero-based budget approach in fleet management requires managers to:
- Carry forward prior year's budget amounts automatically
- Justify every expense from scratch each budget cycle (Correct answer)
- Only budget for new vehicle acquisitions
- Reduce the prior year's budget by a fixed percentage
Correct answer: Justify every expense from scratch each budget cycle
Zero-based budgeting requires all expenses to be justified anew each period rather than using prior-year spending as a baseline.
Question 6: In fleet leasing, what does the 'money factor' represent?
- The percentage of the vehicle's value financed
- The effective interest rate used to calculate the finance charge on a lease (Correct answer)
- The lessor's profit margin on the transaction
- The residual value percentage of the vehicle
Correct answer: The effective interest rate used to calculate the finance charge on a lease
The money factor is the finance charge component of a lease payment and can be converted to an approximate APR by multiplying by 2,400.
Question 7: Which cost is most likely to be categorized as a fixed fleet cost regardless of vehicle utilization?
- Fuel costs
- Tire replacement
- Comprehensive and collision insurance premiums (Correct answer)
- Preventive maintenance labor
Correct answer: Comprehensive and collision insurance premiums
Insurance premiums are fixed costs because they are charged per vehicle per period regardless of how many miles the vehicle is driven.
CAFM Financial Management 3
What does a fleet's 'cost per mile' metric fail to capture that 'cost per unit of work' would better reflect?