Certified Energy Auditor Practice Exam

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How is simple payback defined in relation to energy upgrades?

Cost of an upgrade multiplied by energy savings
Cost of an upgrade divided by energy savings
Energy savings divided by cost of an upgrade
Cost of energy savings per month

The correct answer is: Cost of an upgrade divided by energy savings

Simple payback is defined as the time it takes for an investment in energy upgrades to pay for itself through the savings it generates. The calculation for simple payback involves assessing the initial costs associated with the energy upgrade and determining how long it will take to recover that investment through energy cost savings. In this context, the correct way to calculate simple payback is by dividing the total cost of the upgrade by the annual energy savings achieved from the upgrade. This method highlights how the upfront investment is recouped over time through reduced energy expenses, essentially giving a straightforward financial assessment of the project's viability. By framing it this way, you can see that for an energy-efficient upgrade, understanding the payback period helps determine how long it will take for the project to become financially beneficial, making this metric essential for financial planning and decision-making in energy efficiency projects.