Compact fluorescent lamps (CFLs) have become required in recent years, but do th
ID: 2616818 • Letter: C
Question
Compact fluorescent lamps (CFLs) have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbulb costs $.36 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs $2.95 and lasts for 12,000 hours. A kilowatt-hour is 1,000 watts for 1 hour. Suppose you have a residence with a lot of incandescent bulbs that are used on average 500 hours a year. The average bulb will be about halfway through its life, so it will have 500 hours remaining (and you can’t tell which bulbs are older or newer).
If you require a 11 percent return, at what cost per kilowatt-hour does it make sense to replace your incandescent bulbs today
Compact fluorescent lamps (CFLs) have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbulb costs $.36 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs $2.95 and lasts for 12,000 hours. A kilowatt-hour is 1,000 watts for 1 hour. Suppose you have a residence with a lot of incandescent bulbs that are used on average 500 hours a year. The average bulb will be about halfway through its life, so it will have 500 hours remaining (and you can’t tell which bulbs are older or newer).
Explanation / Answer
No it does not. Workings provided below
CFL
Life = 12000/500= 24 years
Annuity Factor= (1-(1/1.11^24))/0.11 = 8.348
EAC= Cost /Annuity Factor
= 2.95/8.348
=$ 0.353378
Incandescent
Life=1000/500= 2 years
Annuity Factor= (1-(1/1.11^2))/0.11=1.7125
EAC= Cost /Annuity Factor
=0.36/1.7125= $ 0.2102
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