Certified Energy Auditor Certification Certified Energy Auditor Economic Analysis of Projects 1

Question 1

A building owner is evaluating two energy conservation measures. Measure X has a Net Present Value (NPV) of $14,500 and Measure Y has an NPV of $9,200, both evaluated over the same 10-year period at the same discount rate. Which conclusion is most appropriate?

Accepted Answer

Measure X is preferable because it generates more economic value in today's dollars

Answer

NPV represents the total present value of net benefits over the project life. A higher NPV means greater economic value in today's dollars, making Measure X the superior choice when all other evaluation parameters are equal.

Question 2

An energy auditor calculates the Life Cycle Cost (LCC) of a chiller replacement at $210,000 (including initial cost, energy, maintenance, and replacement costs over 20 years) versus keeping the existing unit at an LCC of $275,000 over the same period. What does this analysis indicate?

Accepted Answer

The chiller replacement is economically justified because its LCC is lower

Answer

Life Cycle Cost analysis accounts for all costs over the equipment's life. Since the replacement LCC ($210,000) is lower than keeping the existing unit ($275,000), the replacement is economically justified despite the upfront capital cost.

Question 3

When applying discounted cash flow analysis to an energy project, what is the primary purpose of the discount rate?

Accepted Answer

To reflect the time value of money by expressing future cash flows in present-day terms

Answer

The discount rate in discounted cash flow analysis converts future savings and costs into their present value equivalents, reflecting the principle that a dollar today is worth more than a dollar in the future due to the time value of money.

Question 4

A commercial facility is analyzing an energy project with the following cash flows: Year 0 investment of $30,000, and uniform annual savings of $5,500 for 8 years. At a discount rate of 7%, the present value of the savings stream is $32,650. What is the project's NPV?

Accepted Answer

$2,650

Answer

NPV is calculated as the present value of benefits minus the initial investment: $32,650 − $30,000 = $2,650. A positive NPV indicates the project generates more value than the cost of capital, making it economically viable.

Question 5

Under FEMP (Federal Energy Management Program) methodology, which discount rate is typically used when evaluating energy conservation measures in federal facilities?

Accepted Answer

The OMB-prescribed real discount rate published annually in OMB Circular A-94

Answer

FEMP requires use of the real discount rate published annually by the Office of Management and Budget (OMB) in Circular A-94 for evaluating federal energy projects. This rate reflects the federal government's cost of capital in real (inflation-adjusted) terms.

Certified Energy Auditor Certification Practice Test

Certified Energy Auditor Certification Practice Test

Certified Energy Auditor Certification Certified Energy Auditor Economic Analysis of Projects 1