CEM Finance, Budgeting, and Contracts 4

Question 1

Which of the following best describes life-cycle costing (LCC) in energy project analysis?

Accepted Answer

Considering all costs over the project's useful life, including initial, operating, and disposal costs

Answer

Life-cycle costing accounts for every cost associated with an asset from acquisition through disposal, giving a complete economic picture rather than focusing only on purchase price.

Question 2

A company finances an energy project with a $500,000 loan at 6% annual interest over 10 years. Using an annuity factor of 7.36, what is the approximate annual debt service payment?

Accepted Answer

$67,935

Answer

Annual payment = Loan amount ÷ Annuity factor = $500,000 ÷ 7.36 ≈ $67,935.

Question 3

What is the effect of a higher discount rate on the Net Present Value of an energy efficiency project with long-term savings?

Accepted Answer

NPV decreases because future savings are discounted more heavily

Answer

A higher discount rate reduces the present value of future cash flows, lowering the NPV and making long-payback projects less attractive.

Question 4

In energy procurement contracts, what is a 'swing' tolerance provision?

Accepted Answer

An allowable percentage range within which actual gas or power volumes can vary from contracted quantities without penalty

Answer

A swing tolerance defines how much a buyer's actual consumption can deviate (e.g., ±10%) from the contracted volume before incurring imbalance penalties.

Question 5

Which term describes the minimum monthly charge a customer must pay a utility regardless of actual energy consumption?

Accepted Answer

Customer charge

Answer

The customer charge (or service charge) is a fixed monthly fee that covers the utility's fixed infrastructure costs regardless of how much energy the customer uses.

(CEM) Certified Emergency Manager Practice Test

(CEM) Certified Emergency Manager Practice Test

CEM Finance, Budgeting, and Contracts 4