Certified Energy Auditor Certification Economic Analysis of Projects 2

Question 1

A project has an NPV of $0 when discounted at 12%. What does this indicate?

Accepted Answer

The project's IRR equals exactly 12%

Answer

When NPV equals zero at a given discount rate, that rate is by definition the Internal Rate of Return (IRR).

Question 2

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?

Accepted Answer

Reject the project because IRR is below MARR

Answer

A project should be rejected when its IRR falls below the company's Minimum Acceptable Rate of Return (MARR).

Question 3

Which factor most significantly affects the selection of a discount rate for a public sector energy project analysis?

Accepted Answer

Federal OMB guidance or agency cost of capital

Answer

For public sector projects, the Office of Management and Budget (OMB) provides discount rate guidance that agencies are typically required to follow.

Question 4

If $10,000 is invested today at an annual discount rate of 8%, what is its approximate present value in 5 years' time?

Accepted Answer

$6,806 — present value of a future amount

Answer

The present value of $10,000 received in 5 years at 8% is PV = 10,000 / (1.08)^5 ≈ $6,806.

Question 5

The Discounted Payback Period (DPP) is always _______ the Simple Payback Period (SPP) for the same project.

Accepted Answer

Longer than

Answer

Discounting reduces the value of future savings, so it takes longer to recover the investment when using DPP versus SPP.

Certified Energy Auditor Certification Practice Test