Certified Energy Auditor Certification Economic Analysis of Projects 3

Question 1

Which cost component is NOT typically included in a Life Cycle Cost (LCC) analysis for an energy project?

Accepted Answer

Sunk costs from prior unrelated projects

Answer

Sunk costs are past expenditures that cannot be recovered and are irrelevant to future economic decisions in LCC analysis.

Question 2

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?

Accepted Answer

5.0%

Answer

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.

Question 3

The 'avoided cost' of energy in project economics refers to:

Accepted Answer

The energy cost the building owner does not pay because of an efficiency measure

Answer

Avoided cost from the building owner's perspective is the energy expenditure eliminated by implementing an energy conservation measure.

Question 4

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?

Accepted Answer

Ignored as a sunk cost

Answer

Remaining book value of an existing asset is a sunk cost and does not affect the incremental LCC analysis of the replacement decision.

Question 5

In LCC analysis, the salvage value of equipment at the end of its useful life is treated as:

Accepted Answer

A benefit reducing total LCC (present valued)

Answer

Salvage (residual) value is a future benefit that reduces the total LCC when discounted back to the present.

Certified Energy Auditor Certification Practice Test

Certified Energy Auditor Certification Practice Test

Certified Energy Auditor Certification Economic Analysis of Projects 3