Economic Analysis of Energy Projects — MCQs – EE

1. The primary purpose of economic analysis in energy projects is to:
(A) Evaluate financial feasibility and project profitability
(B) Design electrical circuits
(C) Measure system harmonics
(D) Test load flow performance

2. The term capital cost refers to:
(A) Initial investment required to set up the project
(B) Ongoing maintenance cost
(C) Operating expenses
(D) Fuel cost per year

3. The operating cost of an energy project includes:
(A) Labor, maintenance, and fuel expenses
(B) Land purchase only
(C) Depreciation only
(D) Capital investment

4. Payback period is defined as the time required to:
(A) Recover the initial investment from project savings or profits
(B) Complete the project construction
(C) Reach the maximum load capacity
(D) Repay interest on a loan

5. The shorter the payback period, the project is considered:
(A) More attractive and financially viable
(B) Riskier
(C) Less efficient
(D) Technically complex

6. Net Present Value (NPV) is a measure of:
(A) The difference between present value of cash inflows and outflows
(B) The total future profit
(C) The annual cost of operation
(D) The initial project cost

7. A positive NPV indicates that the project is:
(A) Financially feasible
(B) Not profitable
(C) Risky
(D) Technically infeasible

8. The discount rate in project evaluation represents:
(A) The rate used to convert future cash flows into present value
(B) The interest rate of project loans
(C) The inflation rate
(D) The cost of equipment

9. Internal Rate of Return (IRR) is the rate at which:
(A) NPV of the project becomes zero
(B) Total profit is maximum
(C) Cash inflows are equal to cash outflows
(D) Project duration is minimized

10. A project is acceptable if its IRR is:
(A) Greater than the required rate of return
(B) Equal to zero
(C) Less than inflation rate
(D) Lower than discount rate

11. Life Cycle Cost (LCC) analysis evaluates:
(A) Total cost over the system’s entire lifetime
(B) Only initial investment
(C) Only maintenance expenses
(D) Depreciation rate

12. Simple Payback Method does not consider:
(A) Time value of money
(B) Initial investment
(C) Annual savings
(D) Project cost

13. Benefit-Cost Ratio (BCR) is the ratio of:
(A) Present value of benefits to present value of costs
(B) Annual cost to annual profit
(C) Initial investment to total income
(D) Net profit to total cost

14. A BCR greater than 1 implies the project is:
(A) Economically viable
(B) Not acceptable
(C) Risky
(D) Technically infeasible

15. Depreciation in energy projects refers to:
(A) Reduction in asset value over time
(B) Increase in energy production
(C) Annual maintenance cost
(D) Equipment replacement

16. The salvage value of an asset is:
(A) Its residual value at the end of its useful life
(B) Its initial cost
(C) The maintenance cost
(D) The project revenue

17. The levelized cost of energy (LCOE) represents:
(A) Average cost per unit of energy generated over the project’s life
(B) Cost of installing energy meters
(C) Utility tariff rate
(D) Fixed annual investment

18. Sensitivity analysis is performed to:
(A) Study the impact of variable changes on project outcome
(B) Measure energy efficiency
(C) Calculate thermal losses
(D) Estimate fuel prices only

19. Economic life of a project is the period:
(A) During which the project remains profitable
(B) Before installation begins
(C) After shutdown
(D) When depreciation equals zero

20. Cash flow analysis involves:
(A) Tracking inflows and outflows of funds over time
(B) Measuring only technical efficiency
(C) Estimating grid losses
(D) Balancing voltage levels

21. Inflation rate affects energy project economics by:
(A) Changing the value of money over time
(B) Increasing physical efficiency
(C) Improving project safety
(D) Reducing depreciation

22. Break-even analysis determines:
(A) The point where total cost equals total revenue
(B) The maximum project duration
(C) The project depreciation rate
(D) The system efficiency

23. Replacement analysis is carried out when:
(A) An existing system becomes inefficient or costly
(B) The project starts
(C) The equipment is new
(D) There are no operational costs

24. Tax incentives in energy projects are offered to:
(A) Encourage investment in renewable and efficient technologies
(B) Increase project cost
(C) Reduce energy conservation
(D) Discourage industrial energy use

25. Escalation rate refers to:
(A) Expected annual increase in costs or prices
(B) Rate of energy production
(C) Power factor improvement rate
(D) Load growth per year

26. Discounted Cash Flow (DCF) technique is preferred because it:
(A) Considers time value of money
(B) Ignores inflation
(C) Uses only average costs
(D) Assumes zero interest rate

27. Sunk cost in project economics is:
(A) A cost that has already been incurred and cannot be recovered
(B) Future investment
(C) Variable cost
(D) Salvage value

28. Economic risk analysis helps in:
(A) Assessing uncertainty in costs, revenues, and project outcomes
(B) Reducing load losses
(C) Measuring transformer efficiency
(D) Improving network stability

29. In renewable energy projects, feed-in tariffs are:
(A) Guaranteed prices paid for electricity generated from renewables
(B) Tax rates on fossil fuels
(C) Cost of grid maintenance
(D) Energy storage expenses

30. The main objective of economic optimization in energy projects is to:
(A) Minimize cost and maximize return on investment
(B) Increase total losses
(C) Ignore project risks
(D) Extend payback period