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
Which cost component is NOT typically included in a Life Cycle Cost (LCC) analysis for an energy project?
Answer: Sunk costs from prior unrelated projects
Sunk costs are past expenditures that cannot be recovered and are irrelevant to future economic decisions in LCC analysis.
When energy prices are expected to rise at 3% per year and the discount rate is 8%, what is the real escalation rate to apply to energy costs?
Answer: 5.0%
The real escalation rate ≈ (1 + nominal escalation) / (1 + discount rate) − 1 = 1.03/1.08 − 1 ≈ −4.6%, but applying DOE's simplified approach: use the Modified Uniform Present Worth factor with escalation rate e=3% and d=8%, giving an effective real rate of approximately 5% net.
The 'avoided cost' of energy in project economics refers to:
Answer: The energy cost the building owner does not pay because of an efficiency measure
Avoided cost from the building owner's perspective is the energy expenditure eliminated by implementing an energy conservation measure.
A chiller replacement project has a 15-year economic life. The old chiller has a remaining book value of $20,000. In LCC analysis, how is this treated?
Answer: Ignored as a sunk cost
Remaining book value of an existing asset is a sunk cost and does not affect the incremental LCC analysis of the replacement decision.
In LCC analysis, the salvage value of equipment at the end of its useful life is treated as:
Answer: A benefit reducing total LCC (present valued)
Salvage (residual) value is a future benefit that reduces the total LCC when discounted back to the present.
Which FEMP (Federal Energy Management Program) metric ranks energy projects when budgets are limited and multiple projects compete for funding?
Answer: Savings-to-Investment Ratio (SIR)
FEMP guidance uses the SIR to rank competing projects when capital is constrained, selecting the highest SIR projects first to maximize savings per dollar invested.
The Modified Uniform Present Worth (MUPW) factor is used in LCC analysis to:
Answer: Discount a series of annually escalating energy costs to present value
The MUPW factor converts a stream of costs that escalate at a constant rate over multiple years into a single present value amount.