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
A project has an initial cost of $200,000 and generates after-tax cash flows of $40,000 per year for 7 years with no salvage value. What is the approximate internal rate of return (IRR)?
Answer: 16%
The IRR is approximately 16%, the discount rate at which the NPV of $40,000/yr for 7 years equals the $200,000 investment.
Which factor does NOT directly affect the simple payback period calculation for an energy efficiency measure?
Answer: Discount rate
Simple payback = cost ÷ annual net savings; the discount rate is not used in this calculation, only in time-value-adjusted methods.
A utility offers a $25,000 rebate for installing a high-efficiency chiller that costs $150,000. How does this rebate affect the simple payback period calculation?
Answer: It reduces the net project cost to $125,000, shortening payback
Utility rebates reduce the net first cost of the project, directly shortening the payback period when used to offset the investment.
What is 'fuel price escalation' and why is it important in energy economic analysis?
Answer: The projected annual increase in energy prices that affects future savings values
Fuel price escalation accounts for anticipated increases in energy costs over time, which increases the real value of future energy savings in an LCC analysis.
Under a Power Purchase Agreement (PPA) for solar energy, what does the building owner actually purchase?
Answer: The electricity generated by the solar system at a contracted rate
In a PPA, the building owner buys the electricity output at a fixed or escalating rate per kWh, while the PPA provider owns and maintains the equipment.
What is the 'hurdle rate' in the context of capital budgeting for energy projects?
Answer: The minimum acceptable rate of return an investment must exceed to be approved
The hurdle rate is the organization's minimum required IRR; projects must exceed this rate to be considered financially worthwhile.
When performing a life-cycle cost analysis, which cost category would include the expense of disposing of old refrigerant when replacing a chiller?
Answer: Non-recurring cost
Refrigerant disposal is a one-time expense that occurs at a specific point in the project life, classifying it as a non-recurring cost in the LCC framework.