Certified Energy Auditor Certification Certified Energy Auditor Economic Analysis of Projects Questions and Answers 3

Question 1

A manufacturing plant invests $25,000 in a variable frequency drive for an air handling unit.
Energy costs decrease by $6,500 per year, but annual maintenance increases by $500.
What is the modified simple payback period?

Accepted Answer

4.17 years

Answer

3.85 years

Answer

5.00 years

Answer

3.33 years

Question 2

When performing an economic analysis of energy projects, what does the term 'discount rate' represent?

Accepted Answer

The rate used to convert future cash flows to their present value

Answer

The percentage reduction in energy costs after a retrofit

Answer

The rate at which equipment depreciates over time

Answer

The inflation rate applied to future energy prices

Question 3

An energy auditor evaluates a compressed air leak repair program costing $3,000 with projected annual savings of $4,800. Why might this project still receive a low priority ranking despite its excellent payback?

Accepted Answer

The savings may not persist without ongoing leak detection and maintenance

Answer

The discount rate is too high for small projects

Answer

Compressed air projects are exempt from economic analysis

Answer

The payback period exceeds acceptable thresholds

Question 4

What is the primary advantage of using Internal Rate of Return (IRR) over Net Present Value (NPV) when presenting energy project recommendations to facility management?

Accepted Answer

IRR expresses results as a percentage return, which is easier for non-financial stakeholders to compare

Answer

IRR accounts for project scale better than NPV

Answer

IRR always selects the same optimal project as NPV

Answer

IRR does not require estimating a discount rate

Question 5

When escalating energy prices are expected, how should an energy auditor adjust the economic analysis of a proposed energy conservation measure?

Accepted Answer

Apply an energy price escalation rate to future savings in the cash flow analysis

Answer

Use only current energy prices to keep the analysis conservative

Answer

Ignore price escalation because it equally affects all alternatives

Answer

Reduce the discount rate to compensate for rising prices

Question 6

A university is ranking five energy conservation measures with a limited budget of $100,000. Which economic method is most appropriate for optimizing the selection of projects to fund?

Accepted Answer

Rank by Savings-to-Investment Ratio and fund from highest to lowest until budget is exhausted

Answer

Select the project with the shortest simple payback period

Answer

Fund only projects with IRR above 20%

Answer

Choose the single project with the highest NPV