Financial Planning Flashcards

Which level of assurance generally costs more and involves more extensive testing of GHG data?

Answer: Reasonable assurance

Reasonable assurance requires more evidence and testing than limited assurance, increasing cost.

A company calculates the cost per tonne of CO2e abated for a project. Which formula is correct?

Answer: Net project cost ÷ tonnes CO2e reduced

Abatement cost equals net cost divided by the emissions avoided, expressed in $/tCO2e.

What is the internal rate of return (IRR) of a project?

Answer: The discount rate at which NPV equals zero

IRR is the discount rate that makes the present value of cash inflows equal to the initial investment.

In climate scenario analysis for financial planning, why do companies use multiple scenarios such as 1.5°C and 3°C+ pathways?

Answer: To test resilience of strategy across different transition and physical risk outcomes

Scenarios explore a range of plausible futures to stress-test strategy rather than forecast one outcome.

Which is an example of a climate transition risk with direct financial impact?

Answer: Increased carbon pricing raising operating costs

Transition risks arise from policy, legal, technology, and market changes, such as carbon pricing.

A firm uses an internal carbon price of $50/tCO2e in capital budgeting. Project A emits 2,000 tCO2e/yr more than Project B. What annual cost penalty is applied to Project A?

Answer: $100,000

2,000 tonnes × $50 = $100,000 per year added to Project A's costs.

Why might a company's carbon budget planning separate expenditures into capital (CapEx) and operating (OpEx) categories?

Answer: Because CapEx such as equipment upgrades is depreciated over time while OpEx such as offset purchases is expensed in the period

CapEx is capitalized and depreciated, while OpEx hits the income statement immediately, affecting financial planning differently.