CEM Energy Economics and Financial Analysis

Question 1

A lighting retrofit costs $50,000 and saves $10,000 per year in energy costs. What is the simple payback period?

Accepted Answer

5 years

Answer

3 years

Answer

7 years

Answer

10 years

Question 2

Which statement about Net Present Value (NPV) is correct when evaluating energy projects?

Accepted Answer

A positive NPV indicates the project generates more value than its cost of capital

Answer

A positive NPV means the project will not recover its costs

Answer

NPV does not consider the time value of money

Answer

NPV is calculated without considering a discount rate

Question 3

In energy project financial analysis, the discount rate is used to:

Accepted Answer

Convert future cash flows to present value

Answer

Calculate utility bill demand charges

Answer

Determine equipment depreciation schedules

Answer

Estimate future energy price escalation

Question 4

Life Cycle Cost (LCC) analysis differs from simple payback analysis primarily because LCC:

Accepted Answer

Accounts for all costs over the entire life of the equipment

Answer

Only considers initial capital costs

Answer

Ignores maintenance and operating costs

Answer

Uses current energy prices without escalation

Question 5

The Internal Rate of Return (IRR) of an energy project is best defined as:

Accepted Answer

The discount rate at which the NPV equals zero

Answer

The annual interest rate on project financing

Answer

The project's simple payback period expressed as a percentage

Answer

The ratio of energy savings to capital cost

Question 6

An energy project analysis uses a 3% annual energy cost escalation rate and a 6% nominal discount rate. The approximate 'real' discount rate is:

Accepted Answer

2.9%

Answer

9%

Answer

3%

Answer

6%

Question 7

An energy conservation measure has a Benefit-Cost Ratio (BCR) of 1.8. This means:

Accepted Answer

For every dollar invested, $1.80 in present value benefits are generated

Answer

The project will pay back in 1.8 years

Answer

The project's IRR is 1.8%

Answer

The project costs 1.8 times more than the savings