Economic Analysis and Financing Flashcards
7 cards from real Certified Energy Auditor Certification practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Economic Analysis and Financing flashcards as text
Which economic analysis method accounts for the time value of money and is most appropriate for comparing projects with different lifespans?
Answer: Life-cycle cost analysis (LCCA)
LCCA discounts all future costs and savings to present value, making it suitable for comparing projects with varying lifespans and cash flow profiles.
What is the effect of a higher discount rate on the Net Present Value of an energy efficiency project?
Answer: NPV decreases because future savings are discounted more heavily
A higher discount rate reduces the present value of future savings more aggressively, lowering the project's NPV.
An organization wants to pursue multiple energy projects but has limited capital. Which economic metric is best for ranking projects to maximize value within a budget constraint?
Answer: Savings-to-Investment Ratio (SIR)
SIR (or BCR) ranks projects by return per dollar invested, making it ideal for capital rationing when budget is constrained.
What does 'modified accelerated cost recovery system (MACRS)' refer to in the context of energy project financing?
Answer: A U.S. federal depreciation schedule that affects after-tax project economics
MACRS is the IRS depreciation schedule that determines how quickly capital equipment can be written off, improving after-tax cash flows for energy projects.
In a lease financing arrangement for energy equipment, who typically owns the equipment during the lease term?
Answer: The lessor (financing company)
In a lease, the lessor retains ownership of the equipment while the lessee (building owner) makes periodic payments and uses the equipment.
Which of the following best describes 'on-bill financing' for energy efficiency upgrades?
Answer: The project cost is repaid through a charge added to the customer's utility bill
On-bill financing allows customers to repay energy efficiency loans through their monthly utility bills, often with no upfront cost.
What is the primary purpose of an investment-grade energy audit (IGA) in the context of project financing?
Answer: To provide sufficiently detailed savings estimates for lenders and ESCOs to finance a project
An IGA produces the detailed engineering and financial analysis that lenders and ESCOs require to confidently underwrite energy performance contracts.