Certified Energy Auditor Certification Economic Analysis and Financing 3

Question 1

Which economic analysis method accounts for the time value of money and is most appropriate for comparing projects with different lifespans?

Accepted Answer

Life-cycle cost analysis (LCCA)

Answer

LCCA discounts all future costs and savings to present value, making it suitable for comparing projects with varying lifespans and cash flow profiles.

Question 2

What is the effect of a higher discount rate on the Net Present Value of an energy efficiency project?

Accepted Answer

NPV decreases because future savings are discounted more heavily

Answer

A higher discount rate reduces the present value of future savings more aggressively, lowering the project's NPV.

Question 3

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?

Accepted Answer

Savings-to-Investment Ratio (SIR)

Answer

SIR (or BCR) ranks projects by return per dollar invested, making it ideal for capital rationing when budget is constrained.

Question 4

What does 'modified accelerated cost recovery system (MACRS)' refer to in the context of energy project financing?

Accepted Answer

A U.S. federal depreciation schedule that affects after-tax project economics

Answer

MACRS is the IRS depreciation schedule that determines how quickly capital equipment can be written off, improving after-tax cash flows for energy projects.

Question 5

In a lease financing arrangement for energy equipment, who typically owns the equipment during the lease term?

Accepted Answer

The lessor (financing company)

Answer

In a lease, the lessor retains ownership of the equipment while the lessee (building owner) makes periodic payments and uses the equipment.

Certified Energy Auditor Certification Practice Test

Certified Energy Auditor Certification Practice Test

Certified Energy Auditor Certification Economic Analysis and Financing 3