Cost Analysis

Question 1

Simple bay back period

Answer 1

Investment / savings

Question 2

ROR

Answer 2

rate of return

Question 3

Rate of return

Answer 3

1 / PBP

annual return on investment

Question 4

Strength of PBP and ROR

Answer 4

• results are independent on (assumptions of) time value of money
• works well for short term

Question 5

Problems of PBP and ROR

Answer 5

• often companies want a PBP of <2 years, which is a ROR of 50%. This happens rarely, and is therefore not rational decision making
• they do not take lifetime into consideration

Question 6

effect of lifetime (and PBP)

Answer 6

• if lifetime is shorter then PBP, the investment is a loss

- if lifemtime is 1 year longer then PBP, you only have 1 year of revenue

Question 7

NPV

Answer 7

net present value

Question 8

net present value

Answer 8

• I + (B-C)/a

Question 9

annuity rate

Answer 9

r/ (1-(1+r)^-L)

Question 10

discrount rate

Answer 10

r
expected rate of return from an alternative investment
(investment being - interest from a bank - stock market appreciation - expected profit from one’s own company)

Question 11

A high discount rate

Answer 11

• reflects believe that a large profit can be made from another project
• works against projects with high initial investment

Question 12

Private perspective (r)

Answer 12

a high discount rate > 10%

Question 13

Negative NPV private perspective

Answer 13

may point the need for government intervention to regulate or subsidise

Question 14

Postive NPV private perspective

Answer 14

does not mean that user will invest. Barriers are PBP, acces to capital, lack of information.

Question 15

Social perspective (r)

Answer 15

modest discount rate 2-6%

Question 16

Social perspective NPV

Answer 16

• results may be used for setting policy priorities

- taxes are not taken into account in cost calcuations

Question 17

Irr = … for … is …

Answer 17

IRR = 0 for NPV = r

Question 18

ΔNPV indicates

Answer 18

that one project is better then the other

Question 19

marginal costs

Answer 19

costs of next unit of CO2

Question 20

Specific costs

Answer 20

Costs of technology per unit of CO2

Question 21

formula for specific (or marginal) costs

Answer 21

(a * ΔI + ΔC-ΔB)/ ΔCO2

Question 22

cost of electricity

Answer 22

(a + I + O&M + fuel cost) / electricity production

Question 23

real discount rate

Answer 23

r real = (r actual - r inflation)/(1 + r inflation)

Question 24

Real $ values should always be expressed as

Answer 24

$ for specific year

Question 25

increase of nominal energy price

Answer 25

price year x = price year x-n * (1 + y) ^n

with n the amount of years and y the increase

Question 26

Progress ratio

Answer 26

for every doubling of production, the production costs will decrease by factor X

Question 27

Progress ratio can be about

Answer 27

cost
technology

(learning rates give no guarentees for future)

Question 28

Formulas for calculating Progress ratio

Answer 28

Cp = C1 · P^b

-Cp = costs per unit after the cumulative production of P
units
-C1 = cost of the first unit
-b = the experience index (generally < 1)

AND

C2p= C1·(2P)^b
-C2p= costs per unit after the cumulative production of
2P units

Question 29

The progress ratio can be calculated by

Answer 29

C2p / Cp

Question 30

Learning rate

Answer 30

1 - pr

Question 31

PR

Answer 31

progress ratio

Question 32

A progress ratio of 80% means

Answer 32

cost will decrease with 20%

Question 33

Learning by (4)

Answer 33

• doing
• searching
• using
• interacting

Question 34

learning by doing (4)

Answer 34

• Labor efficiency
• Standardization (incl. mass production)
• Specialization
• methods improvements / improved use of equipment

Question 35

Learning by searching

Answer 35

Changes in the resource mix / Product redesign

Question 36

Learning by using

Answer 36

Product redesign based on experience users

Question 37

Learning by interacting

Answer 37

Shared experience effects

Question 38

If there is a constant PR

Answer 38

eventually costs will stabilize

Question 39

Progress ratio =

Answer 39

= 2b = C2p/Cp