Economic Analysis of Projects 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 of Projects flashcards as text
A project has an NPV of $0 when discounted at 12%. What does this indicate?
Answer: The project's IRR equals exactly 12%
When NPV equals zero at a given discount rate, that rate is by definition the Internal Rate of Return (IRR).
A company requires a minimum acceptable rate of return (MARR) of 15%. An energy project has an IRR of 13%. What is the correct decision?
Answer: Reject the project because IRR is below MARR
A project should be rejected when its IRR falls below the company's Minimum Acceptable Rate of Return (MARR).
Which factor most significantly affects the selection of a discount rate for a public sector energy project analysis?
Answer: Federal OMB guidance or agency cost of capital
For public sector projects, the Office of Management and Budget (OMB) provides discount rate guidance that agencies are typically required to follow.
If $10,000 is invested today at an annual discount rate of 8%, what is its approximate present value in 5 years' time?
Answer: $6,806 — present value of a future amount
The present value of $10,000 received in 5 years at 8% is PV = 10,000 / (1.08)^5 ≈ $6,806.
The Discounted Payback Period (DPP) is always _______ the Simple Payback Period (SPP) for the same project.
Answer: Longer than
Discounting reduces the value of future savings, so it takes longer to recover the investment when using DPP versus SPP.
The Benefit-Cost Ratio (BCR) for an energy project is calculated as:
Answer: Present value of benefits divided by present value of costs
BCR = PV of benefits / PV of costs; a ratio above 1.0 indicates the project is economically justified.
A project has a Savings-to-Investment Ratio (SIR) of 2.4. What does this mean?
Answer: Every dollar invested returns $2.40 in present-value savings
An SIR of 2.4 means the present value of net savings is $2.40 for every $1.00 of investment cost, indicating a highly favorable project.