ANSWER: In year 5, before year 6 begins.
To answer the question of when this particular vehicle should be replaced, we need to look at the anticipated Cost Per Mile (CPM) in the bottom line of the matrix. We are looking for the point in the lifecycle where the CPM begins to increase, indicating the projected maintenance and repair expenses are likely to accumulate faster than the vehicle's depreciation. Since the costs in year 6 ($0.397 per mile) are greater than in year 5 ($0.385 per mile), we can minimize costs by replacing the vehicle in year 5, before year 6 begins.
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Larissa Clinard CAFM
Logistics Manager
J. F. Ahern Co.
Fond Du Lac WI
(920) 921-9020
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Original Message:
Sent: 08-04-2020 14:25
From: Larissa Clinard
Subject: FM - Lifecycle Cost Analysis
Hello Fellow CAFM/CAFS Community Members!
This practice question is from the Financial Management Module, and focuses on the Lifecycle Cost Analysis (LCA). You'll likely have noticed how much material in the FM module is dedicated to the LCA, and justifiably so! The LCA is an incredibly versatile tool that can help an organization make a number of important decisions for their fleet program. A few of the decisions the LCA can help with include:
- selecting a vehicle based on lowest cost per mi/km
- determine when to replace vehicles
- decide whether to lease or buy vehicles
- how best to maintain (in-house vs. outsourced) vehicles
- whether adding an alternate fuel vehicle to the fleet is a cost-effective option
Our first LCA question focuses on determining the optimum replacement timeframe for a vehicle in order to minimize costs.
Given the information above, if the maximum lifecycle for this vehicle is 84 months, in what year should this vehicle be replaced to minimize costs? Why?
Need a hint? Head to section 5.3.6 of the FM Study Guide to point you to the information that covers this area of the LCA model. I'll post the answer and explanation later this week!
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Larissa Clinard CAFM
Logistics Manager
J. F. Ahern Co.
Fond Du Lac WI
(920) 921-9020
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