CEM Finance, Budgeting, and Contracts 5

Question 1

A building undergoes an energy retrofit funded by a $300,000 bond with a 20-year term at 5% interest. Annual energy savings are $28,000. What is the approximate simple payback on the bond principal alone?

Accepted Answer

10.7 years

Answer

Simple payback = $300,000 ÷ $28,000/year ≈ 10.7 years, which falls within the bond term.

Question 2

Which of the following best defines 'avoided cost' in the context of energy project financial analysis?

Accepted Answer

The energy expenditure that would have been incurred without the efficiency project

Answer

Avoided cost is the baseline energy spending that would have occurred in the absence of the project, used as the benefit against which project costs are compared.

Question 3

When preparing a capital budget request for an energy project, which document most effectively communicates the project's financial merit to senior management?

Accepted Answer

Business case with NPV, IRR, and payback analysis

Answer

A business case that includes NPV, IRR, and payback period translates technical energy savings into financial terms that executives use to compare and prioritize capital investments.

Question 4

What is the key distinction between an operating lease and a capital lease for energy equipment?

Accepted Answer

Capital leases appear on the balance sheet as both an asset and a liability, while operating leases do not

Answer

Under accounting standards, a capital (finance) lease transfers ownership risks and rewards to the lessee, requiring recognition of both an asset and a corresponding liability on the balance sheet.

Question 5

A utility offers a time-of-use (TOU) rate with on-peak energy at $0.18/kWh and off-peak at $0.09/kWh. A load-shifting project moves 50,000 kWh/month from on-peak to off-peak. What are the monthly savings?

Accepted Answer

$4,500

Answer

Savings per kWh shifted = $0.18 − $0.09 = $0.09; monthly savings = 50,000 kWh × $0.09/kWh = $4,500.

(CEM) Certified Emergency Manager Practice Test

(CEM) Certified Emergency Manager Practice Test

CEM Finance, Budgeting, and Contracts 5