CEA CEA Financial Analysis & Energy Project Economics 1

Question 1

Which financial metric represents the ratio of annual energy cost savings to the total initial investment for an energy project?

Accepted Answer

Return on investment (ROI)

Answer

Return on investment (ROI) is calculated as annual savings divided by total investment, expressed as a percentage.

Question 2

A lighting retrofit costs $50,000 and saves $12,500 per year in electricity. What is the simple payback period?

Accepted Answer

4 years

Answer

Simple payback = Initial cost / Annual savings = $50,000 / $12,500 = 4 years.

Question 3

Which discount rate concept is used in life-cycle cost analysis to account for the time value of money?

Accepted Answer

Discount rate

Answer

The discount rate converts future cash flows to present value, reflecting the time value of money in life-cycle cost analysis.

Question 4

What does a positive Net Present Value (NPV) indicate about an energy project?

Accepted Answer

The project generates more value than its cost over the analysis period

Answer

A positive NPV means the discounted future savings exceed the initial investment, indicating the project adds financial value.

Question 5

Which federal incentive allows businesses to deduct a percentage of the cost of qualifying energy-efficient commercial building improvements?

Accepted Answer

Section 179D deduction

Answer

Section 179D of the Internal Revenue Code provides a tax deduction for energy-efficient improvements to commercial buildings.

(CEA) Certified Energy Analyst Practice Test