Objective Type

Each question carries One mark

1 A sum of Rs 10000 is deposited in a bank as a fixed deposit for 3 years. The

bank pays 9% interest annually. How much money, in Rs., will be received at
the maturity if the fixed deposit is encashed?
a) 12950 b) 12700 c) 11800 d) none of the above
2 Which of the following equation is used to calculate the future value of the
cash flow?
a) NPV (1 – i)n b) NPV + (1 – i)n
n
c) NPV (1 + i) d) NPV/ (1 + i)n
3 Select the wrong statement
a) NPV of a project is equal to sum of the all present values of the cash flows
b) NPV represents the net benefit over and above compensation for time and
risk
c) accept the project if NPV is negative
d) NPV takes into account time value of money
4 The internal rate of return is the discount rate for which the NPV is
a) less than 1 b) +ve c) –ve d) zero
5 considers impact of cash flow even after payback period
a) Net present value b) return on investment
c) Sensitivity analysis d) simple payback period

6 The net present value (NPV) is

a) equal to the sum of the present values of all cash flows
b) equal to the sum of returns
c) equal to the sum of all cash flows
d) none of the above
7 If NPV = 1000 and i = 5% then the future value after 10 years is
a) 1,551 b) 614 c) 1,629 d) 645
8 What is the expected Return on Investment (ROI) from the project with Rs.10
lakhs investment and annual saving of Rs.3.0 lakhs and annual operating cost
of Rs.1.0 lakhs
a) 20% b) 25% c) 30% d) 10 %
9 ROI must always be ___ than interest rate
a) lower b) equal c) higher d) lower or equal
10 Which subject is not so important in the screening of projects in a need
identification
a) implementation period b) availability of technology
c) sustainability of the savings d) cost-effectiveness
11 The factor that reflects the risk of the project while evaluating the present
value of the expected future cash flow is
a) life of the project b) discount rate
c) capital cost d) all the above
12 What does the concept of time value of money imply
a) present value of money b) future value of money
c) discounting of cash flows d) all of the above
13 Return on Investment (ROI) as a fraction means
a) initial investment / annual return b) annual cost / cost of capital
c) annual net cash flow / capital cost d) none of the above.
14 Which source of project financing is not from an internal source?
a) loans from employees b) direct cash from company resources
c) new share capital d) payment by savings
15 A factor that reflects the risk of the project while evaluating the net present
value for the expected future cash flow is:
a) Discount rate b) Internal rate of return
c) Capital Cost d) All of the above
16 Assume Project A has an IRR of 30% and NPV of Rs. 1,50,000 and Project B
has an IRR of 55% and NPV of Rs. 25,000. Which project would you
implement first if financing is available and project technical life is the same?
a) Neither A nor B b) B
c) A d) cannot be decided
17 The cost of a new heat exchanger is Rs. 1.0 lakh. The simple payback period
in years considering annual savings of Rs 60,000 and annual operating cost of
Rs. 10,000 is
a) 0.50 b) 1.66 c) 2.00 d)6.00
18 Which of the following statements regarding Internal Rate of Return (IRR) is
correct?
a) IRR distinguishes between lending and borrowing
b) Internal rate of return is the discount rate at which net present
value is equal to zero
c) if the IRR is higher than current interest rate, the investment is not
attractive
d) between two alternative projects, the project with lower internal rate of
return would be considered more attractive
19 The internal rate of return is the discount rate for which the NPV is
a) positive b) zero c) negative d) less than 1
20 The retrofitting of a variable speed drive in a plant costs Rs 2 lakh. The annual
savings is Rs 0.5 lakh. The maintenance cost is Rs. 5,000/year. The return on
investment is
a) 25% b) 22.5% c) 24% d) 27.5%
21 For a project to be financially attractive, ROI must always be than
interest rate.

a) lower b) higher c) equal d) no relation

22 A sum of Rs 100,000 is deposited in a bank at the beginning of a year. The
bank pays 10% interest annually. How much money will be in the bank
account at the end of the fifth year, if no money is withdrawn?
a) 161050 b) 150000 c) 155000 d) 160000
23 The cost of replacement of inefficient chiller with an energy efficient chiller
in a plant was Rs. 10 lakh .The net annual cash flow is Rs 2.50 lakh .The
return on investment is:
a) 18% b) 20% c) 15 % d) none of the above
24 In project financing, sensitivity analysis is applied because
a) almost all the cash flow methods involve uncertainty
b) of the need to assess how sensitive the project to changes in input
parameters
c) what if one or more factors are different from what is predicted
d) all the above situation
25 determines the project viability in response to changes in input
parameters.
a) Life cycle analysis b) Financial analysis
c) Sensitivity analysis d) Payback analysis
26 A sensitivity analysis is an assessment of
a) cash flows b) risks due to assumptions
c) capital investment d) best financing source
27 Which one is not a macro factor in a sensitivity analysis?
a) change in interest rates b) technology changes
c) cost of debt d) change in tax rates
28 What is the future value of Rs.1000/- after 3 years, if the interest rate is 10%
a) Rs. 1331 b) Rs.1610 c) Rs.3221 d) none of the above
29 Capital cost are associated with
a) Design of Project
b) Installation and Commissioning of Project
c) Operation and Maintenance cost of project
d) both a and b
30 Costs associated with the design, planning, installation and commissioning of
a project are
a) variable costs b) capital costs
c) salvage value d) none of the above
31 Any management would like to invest in projects with
a) Low IRR b) Low ROI
c) Low NPV of future returns d) none of the above
32 A waste heat recovery system costs Rs. 54 lakhs and Rs. 2 lakhs per year to
operate and maintain. If the annual savings is Rs. 20 lakhs, the payback period
will be
a) 8 years b) 2.7 years c) 3 years d) 10 years
33 Cost of a new heat exchanger is Rs. 1.5 lakh. The simple payback period
(SPP) in years considering annual savings of Rs 60,000 and annual
maintenance cost of Rs 10,000 is
a) 0.4 b) 2.5 c) 3 d) 6
34 The cost of replacement of inefficient compressor with an energy efficient
compressor in a plant costs Rs. 8 lakhs. The net annual cash flow is Rs. 2
lakhs. The return on investment
a) 18% b) 20% c) 15% d) none of the above
35 An investment of Rs 96,000 has a simple payback period of two years. The
monthly savings must be
a) Rs 8,000 b) Rs 4,000 c) Rs 9,600 d) Rs 12,000
36 For an investment which has fluctuating annual savings over its project life,
which of the following financial analysis techniques is the best?
a) Simple payback period b) ROI
c) NPV d) IRR
37 The present value of equipment is Rs. 10,000 and discount rate is 10%. The
future value of the cash flow at the end of 2 years is:
a) Rs. 10000 b) Rs. 12,100 c) Rs. 8100 d) Rs. 8264
38 A sum of Rs 10,000 is deposited in a bank at the beginning of a year. The
bank pays 10% interest annually. How much money is in the bank account at
the end of the fifth year, if no money is withdrawn?
a) 16105 b) 15000 c) 15500 d) 16000
39 A contract in which the costs are paid from all or part of the energy cost
savings is called
a) performance contract
b) traditional contract
c) extended technical guarantee contract
d) guaranteed savings performance contract
40 The annual electricity bill for a plant is Rs 10 lakhs and accounts for 38% of
the total energy bill. Furthermore the total energy bill increases by 5% each
year. How high is the plant’s annual energy bill at the end of the third year?
a) Rs 30.46 lakhs b) Rs 26.32 lakhs
c) Rs 38.42 lakhs d) none of the above
41 Which of the following Financial Analysis Techniques fails to consider the
time value of money
a) Simple Payback Period (SPB) b) Internal Rate of Return (IRR)
c) Net Present Value (NPV) d) none of the above
42 Assume project A has an IRR of 85% and NPV of Rs 15,000 and project B
has an IRR of 25% and NPV of 200,000. Which project would you implement
first if financing is available and project technical life is the same?
a) B b) A c) cannot be decided d) question does not
make sense
43 A waste heat recovery system costs Rs. 54 lakh and Rs. 2 lakh per year to
operate and maintain. If the annual savings is Rs. 20 lakhs, the payback period
will be
a) 8 years b) 2.7 years c) 3 years d) 10 years
44 The ratio of annual net cash flow to capital cost is ____________
a) net present value b) internal rate of return
c) return on investment d) discount factor
45 Which of the following is not true of IRR?
a) it takes into account time value of money
b) it considers the cash flow streams in its entirety
c) does not distinguish between lending and borrowing
d) none of the above
46 To judge the attractiveness of any investment, the project manager must
consider:
a) Initial capital cost b) Net operating cash inflows
c) salvage value d) all the above
47 ROI must always be ________ borrowing interest rate for economic
feasibility of any project
a) lower than b) higher than
c) equal to d) no relation
48 A factor that reflects the risk of the project while evaluating the net present
value for the expected future cash flow is:
a) Discount rate b) Internal rate of return
c) Capital cost d) All of the above
 Short Answer Questions
Each question carries Five marks

S-1 A pressure reducing valve is proposed to be replaced by a steam turbine. The

investment required is BDT.40 lakhs. Additional maintenance and operating costs
for the turbine is expected to be BDT. 1 lakh per annum. If the annual savings is
BDT.9 lakhs, calculate the payback period and Return on Investment.
S- 2 A plant is using 6 tonnes / day of coal to generate steam. The calorific of coal is
3300 kcal/kg. The cost of coal is BDT 4200/tonne. The plant substitutes coal with
agro-residue, as a boiler fuel, which has a calorific value of 3100 kcal/kg and
costs BDT 1800/tonne. Calculate the annual cost savings at 300 days of operation,
assuming the boiler efficiency remains same at 72% for coal and agro residue as
fuel.
S- 3 The annual fuel cost of boiler operation in a plant is BDT.10 Lakhs. The boiler
with 65% efficiency is now replaced by a new one with 78% efficiency. What is
the annual cost savings?
S- 4 Investment for an energy proposal is BDT. 20 lakhs. Annual savings for the first
two years is BDT. 4 lakhs each and subsequent two years BDT. 6 lakhs each and
fifth year BDT 7 lakhs. Considering cost of capital as 10%, what is the net present
value of the proposal> Is it worth investing in this project?
S- 5 In a heat exchanger, stem is used to heat 5 KL/hour of furnace oil from 30 °C to
90 °C. The specific heat of furnace oil is 0.22 kcal/kg/°C and the density of
furnace oil is 0.95.
a) How much steam per hour is needed if steam at 4 kg/cm2 with latent heat of
510 kcal/kg is used
b) If steam cost is BDT 3.50/kg and electrical energy cost BDT 4/ kWh, which
type of heating would be more economical in this particular case
S-6 Calculate the net present value over a period of 3 years for a project with the
following data. The discount rate is 12%.

Year Investment (BDT) Savings (BDT)

0 75,000
1 25,000
2 75,000
3 50,000 75,000
4 35,000
S-7 Calculate Net Present Value over a period of 3 years for a project with an
investment of BDT 70,000 at the beginning of the first year and second
investment of BDT 70,000 at the beginning of the second year and fuel cost
saving of BDT 95,000 in second and third year. The discount rate is 14%
S-8 Briefly compare NPV and IRR method of financial analysis.
S-9 What are the limitations of a simple payback period (SPP)?
S-10 Calculate the future value of a cash flow with NPV = BDT 1 Lakh at the end of
the 7th year if the interest rate is 5%.
S-11 State the equation how to calculate the Net Present Value (NPV) of an
investment and identify the parameters in the equation.
S-12 Explain why a project with a high IRR is not necessarily more attractive than a
project with lower IRR?
S-13 An energy saving proposal involves an investment of BDT. 25 lakhs in an
industry and is expected to yield an average annual net saving of BDT. 5
lakhs/annum. The cost of borrowing of the investment is 14%. Compute the
return on investment for this proposal and state with reason whether the
investment is justified
Also, state the limitations of ROI.
 Long Answer Questions
Each question carries Ten marks

L-1 The following are the cash flows for a simple insulation up gradation project.

YEAR 0 1 2 3 4
Cash -18,000 -5,000 10,000 10,000 10,000
flow

a) Calculate the NPV if the cost of capital or discount rate is 8%

b) Calculate the IRR
L-2 The following are the cash flows for retrofitting of a cooling tower project.
Year 0 1 2 3 4
Cash flow -12,30,000 3,00,000 4,00,000 4,00,000 4,00,000

Calculate the IRR for the project

L-3 A company has to choose between two projects whose cash flows are as
indicated below;
Project 1:
i. Investment – BDT. 15 Lakhs
ii. Annual cost savings – BDT. 4 lakhs.
iii. Bi-annual maintenance cost – BDT. 50,000/-
iv. Reconditioning and overhaul during 5th year: 6 lakhs
v. Life of the project – 8 years
vi. Salvage value – BDT. 5 lakhs

Project 2:

i. Investment – BDT. 14 Lakhs

ii. Annual cost savings – BDT. 3.5 lakhs.
iii. Annual Maintenance cost – BDT. 20,000/-
iv. Reconditioning and overhaul during 4th year: 5 lakhs
v. Life of the project – 8 years
vi. Salvage Value- 2 lakhs

Which project should the company choose? The annual discount rate is 12%.
L-4 The cash flows in two different energy conservation projects are given in the table
below. Please help the management of an infrastructure company to decide which
project to invest in as the management is interested in investing in only one project.
The company is likely to consider any project which gives a minimum return on
investment of 18%. Please justify your choice. (Amount in BDT)
Project A Project B
Investment 17,50,000 12,00,000
Year Expenses Savings Expenses Savings
1 4,00,000 4,50,000
2 4,00,000 4,00,000
3 4,00,000 3,50,000
 4 4,00,000 3,00,000
5 1,00,000 6,00,000 2,50,000
6 6,00,000 2,00,000
7 6,00,000 1,16,650
8 3,80,300

L-5 A plant is using 4 tonnes/day of coal to generate steam. The calorific value of the
coal is 4000 kcal/ kg. The cost of coal is BDT. 2,000/tonne. The plant substitutes
coal with rice husks, as a boiler fuel, which has a calorific value of 3000 kcal/ kg
and cost BDT. 700/tonne. Calculate the annual cost savings at 300 days of
operation, assuming that the boiler efficiency decreases from 78% on coal to 72%
on rice husks.
L-6 A company invests BDT.10 lakhs and completes an energy efficiency project at the
beginning of year 1. The firm is investing its own money and expects an internal
rate of return, IRR, of at least 26% on constant positive annual net cash flow of
BDT.2 lakhs, over a period of 10 years, starting with year 1.
i. Will the project meet the firm’s expectations?
ii. What is the IRR of this measure?

L-7 Briefly describe the various financial analysis techniques for investments in energy
efficiency projects and their suitability of application.
L-8 Assume that the annual per capita electricity consumption of India is 615 kWh and
the population is 1.078 Billion people.

(i) If the installed power capacity is 118,419 MW, calculate the average plant
load factor of the power mix at 606 kWh per capita consumption.

(ii) Calculate annual per capita consumption 30 years later if electricity

consumption in India goes up by 6% each year, and population growth is 1.0%
annually.

(iii) How many years will it take to reach the per capita consumption of the USA
at 13,500 kWh under a business as usual scenario as in (ii)?

L-9 An agency is implementing Energy efficiency measures in municipal water pumping

under ESCO route. The investment is BDT. 6 crores. Present annual bill is BDT. 4
Crores. The expected savings are 20%. (Cost of power = BDT 4/kWh, Annual
maintenance cost -10% of investment) The expected CDM revenues would be BDT.
50 Lakhs/year. Calculate IRR for this project after including the CDM benefit
L-10 Investment for a set of interrelated energy efficiency projects identified in a medium
size process plant works out to BDT.12.00 lakh. Annual savings for the first four
consecutive years are BDT. 350,000, BDT. 400,000, BDT. 400,000 and BDT.
 450,000, respectively. The cost of capital is 12% p.a.

What is the net present value (NPV)? And as per NPV, suggest weather the plant can
go ahead with the projects.
L-11 In a fertilizer plant, the off-site boiler was revamped to improve the efficiency by
spending BDT. 200 lakhs. The discount rate for the company is 15%. The projected
cost of saving of fuel was BDT. 40 lakhs/ year. Find out the NPV at the end of 10
years of the operation of the boiler. State your opinion about the usefulness of this
investment.

*****

Note: This document has been produced with the financial assistance of the European Union. The
views expressed herein can in no way be taken to reflect the official opinion of the European Union.