Compact fluorescent lamps (CFLs) have become more popular in recent years, but d
ID: 2641767 • Letter: C
Question
Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbulb costs $0.54 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs $3.85 and lasts for 12,000 hours. A kilowatt hour of electricity costs $0.130, which is about the national average. A kilowatt-hour is 1,000 watts for 1 hour. However, electricity costs actually vary quite a bit depending on location and user type. An industrial user in West Virginia might pay $0.04 per kilowatt-hour whereas a residential user in Hawaii might pay $0.25.
You require a return of 10 percent and use a light fixture 500 hours per year. What is the break-even cost per kilowatt-hour?
Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbulb costs $0.54 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs $3.85 and lasts for 12,000 hours. A kilowatt hour of electricity costs $0.130, which is about the national average. A kilowatt-hour is 1,000 watts for 1 hour. However, electricity costs actually vary quite a bit depending on location and user type. An industrial user in West Virginia might pay $0.04 per kilowatt-hour whereas a residential user in Hawaii might pay $0.25.
Explanation / Answer
In the given question we need to test the financial viability of the two kinds of bulb:
A) 60-Watt Incandescent Bulb
B) 15-Watt CFL
We have three situations :
1) Industrial User in West Virginia
2) Residential User in Hawaii
3) National Average
Now to test the financial viability we can compare the break even cost per kilowatt-hour in each of the three situations. The bulb with least break even cost will be rated as financially viable bulb.
Situation -1 Industrial User
A) Present Value of the electricity cost per hour for 60-Watt Incandescent Bulb is given in below table
Life = 1000 hours
Years = 1000/500 = 2 Years
Life
Hours per year
Amount at $ 0.04 per hour (A)
Present Value at 10% (B)
Total Amount (A * B)
1
500
$ 20,000
$ 0.9090909
$ 18,181.82
2
500
$ 20,000
$ 0.8264463
$ 16,528.93
Grand Total
$ 34,710.74
Now break even cost per hour = Present Value of the electtricity cost / Cost of the Bulb
= $ 34,170.74 / $ 0.54
= $ 64,279.16
Break even cost per kilowatt hour = $ 64.27916
B) Present Value of the electricity cost per hour for 15-Watt CFL is given in below table
Life = 12000 hours
Years = 12000/500 = 24 Years
Life
Hours
Amount at $ 0.04 per hour (A)
Present Value at 10% (B)
Total Amount (A * B)
1
500
$ 20,000
$ 0.9090909
$ 18,181.82
2
500
$ 20,000
$ 0.8264463
$ 16,528.93
3
500
$ 20,000
$ 0.7513148
$ 15,026.30
4
500
$ 20,000
$ 0.6830135
$ 13,660.27
5
500
$ 20,000
$ 0.6209213
$ 12,418.43
6
500
$ 20,000
$ 0.5644739
$ 11,289.48
7
500
$ 20,000
$ 0.5131581
$ 10,263.16
8
500
$ 20,000
$ 0.4665074
$ 9,330.15
9
500
$ 20,000
$ 0.4240976
$ 8,481.95
10
500
$ 20,000
$ 0.3855433
$ 7,710.87
11
500
$ 20,000
$ 0.3504939
$ 7,009.88
12
500
$ 20,000
$ 0.3186308
$ 6,372.62
13
500
$ 20,000
$ 0.2896644
$ 5,793.29
14
500
$ 20,000
$ 0.2633313
$ 5,266.63
15
500
$ 20,000
$ 0.2393920
$ 4,787.84
16
500
$ 20,000
$ 0.2176291
$ 4,352.58
17
500
$ 20,000
$ 0.1978447
$ 3,956.89
18
500
$ 20,000
$ 0.1798588
$ 3,597.18
19
500
$ 20,000
$ 0.1635080
$ 3,270.16
20
500
$ 20,000
$ 0.1486436
$ 2,972.87
21
500
$ 20,000
$ 0.1351306
$ 2,702.61
22
500
$ 20,000
$ 0.1228460
$ 2,456.92
23
500
$ 20,000
$ 0.1116782
$ 2,233.56
24
500
$ 20,000
$ 0.1015256
$ 2,030.51
Grand Total
$ 179,694.88
Now break even cost per hour = Present Value of the electtricity cost / Cost of the Bulb
= $ 179,694.88 / $ 3.85
= $ 46,673.99
Break even cost per kilowatt hour = $ 46.674
Situation-2 Residential User
A) Present Value of the electricity cost per hour for 60-Watt Incandescent Bulb is given in below table
Life = 1000 hours
Years = 1000/500 = 2 Years
Life
Hours per year
Amount at $ 0.25 per hour (A)
Present Value at 10% (B)
Total Amount (A * B)
1
500
$ 125,000
$ 0.9090909
$ 113,636.36
2
500
$ 125,000
$ 0.8264463
$ 103,305.79
Grand Total
$ 216,942.15
Now break even cost per hour = Present Value of the electtricity cost / Cost of the Bulb
= $ 216,942.15 / $ 0.54
= $ 401,744.7
Break even cost per kilowatt hour = $ 401.7447
B) Present Value of the electricity cost per hour for 15-Watt CFL is given in below table
Life = 12000 hours
Years = 12000/500 = 24 Years
Life
Hours per year
Amount at $ 0.25 per hour (A)
Present Value at 10% (B)
Total Amount (A * B)
1
500
$ 125,000
$ 0.9090909
$ 113,636.36
2
500
$ 125,000
$ 0.8264463
$ 103,305.79
3
500
$ 125,000
$ 0.7513148
$ 93,914.35
4
500
$ 125,000
$ 0.6830135
$ 85,376.68
5
500
$ 125,000
$ 0.6209213
$ 77,615.17
6
500
$ 125,000
$ 0.5644739
$ 70,559.24
7
500
$ 125,000
$ 0.5131581
$ 64,144.76
8
500
$ 125,000
$ 0.4665074
$ 58,313.42
9
500
$ 125,000
$ 0.4240976
$ 53,012.20
10
500
$ 125,000
$ 0.3855433
$ 48,192.91
11
500
$ 125,000
$ 0.3504939
$ 43,811.74
12
500
$ 125,000
$ 0.3186308
$ 39,828.85
13
500
$ 125,000
$ 0.2896644
$ 36,208.05
14
500
$ 125,000
$ 0.2633313
$ 32,916.41
15
500
$ 125,000
$ 0.2393920
$ 29,924.01
16
500
$ 125,000
$ 0.2176291
$ 27,203.64
17
500
$ 125,000
$ 0.1978447
$ 24,730.58
18
500
$ 125,000
$ 0.1798588
$ 22,482.35
19
500
$ 125,000
$ 0.1635080
$ 20,438.50
20
500
$ 125,000
$ 0.1486436
$ 18,580.45
21
500
$ 125,000
$ 0.1351306
$ 16,891.32
22
500
$ 125,000
$ 0.1228460
$ 15,355.75
23
500
$ 125,000
$ 0.1116782
$ 13,959.77
24
500
$ 125,000
$ 0.1015256
$ 12,690.70
Grand Total
$ 1,123,093.00
Now break even cost per hour = Present Value of the electtricity cost / Cost of the Bulb
= $ 1,123,093 / $ 3.85
= $ 291,712.5
Break even cost per kilowatt hour = $ 2,917.125
Situation-3 National Average
A) Present Value of the electricity cost per hour for 60-Watt Incandescent Bulb is given in below table
Life = 1000 hours
Years = 1000/500 = 2 Years
Life
Hours per year
Amount at $ 0.13 per hour (A)
Present Value at 10% (B)
Total Amount (A * B)
1
500
$ 65,000
$ 0.9090909
$ 59,090.91
2
500
$ 65,000
$ 0.8264463
$ 53,719.01
Grand Total
$ 112,809.92
Now break even cost per hour = Present Value of the electtricity cost / Cost of the Bulb
= $ 112,809.92 / $ 0.54
= $ 208,907.3
Break even cost per kilowatt hour = $ 208.9073
B) Present Value of the electricity cost per hour for 15-Watt CFL is given in below table
Life = 12000 hours
Years = 12000/500 = 24 Years
Life
Hours per year
Amount at $ 0.13 per hour (A)
Present Value at 10% (B)
Total Amount (A * B)
1
500
$ 65,000
$ 0.9090909
$ 59,090.91
2
500
$ 65,000
$ 0.8264463
$ 53,719.01
3
500
$ 65,000
$ 0.7513148
$ 48,835.46
4
500
$ 65,000
$ 0.6830135
$ 44,395.87
5
500
$ 65,000
$ 0.6209213
$ 40,359.89
6
500
$ 65,000
$ 0.5644739
$ 36,690.81
7
500
$ 65,000
$ 0.5131581
$ 33,355.28
8
500
$ 65,000
$ 0.4665074
$ 30,322.98
9
500
$ 65,000
$ 0.4240976
$ 27,566.35
10
500
$ 65,000
$ 0.3855433
$ 25,060.31
11
500
$ 65,000
$ 0.3504939
$ 22,782.10
12
500
$ 65,000
$ 0.3186308
$ 20,711.00
13
500
$ 65,000
$ 0.2896644
$ 18,828.18
14
500
$ 65,000
$ 0.2633313
$ 17,116.53
15
500
$ 65,000
$ 0.2393920
$ 15,560.48
16
500
$ 65,000
$ 0.2176291
$ 14,145.89
17
500
$ 65,000
$ 0.1978447
$ 12,859.90
18
500
$ 65,000
$ 0.1798588
$ 11,690.82
19
500
$ 65,000
$ 0.1635080
$ 10,628.02
20
500
$ 65,000
$ 0.1486436
$ 9,661.84
21
500
$ 65,000
$ 0.1351306
$ 8,783.49
22
500
$ 65,000
$ 0.1228460
$ 7,984.99
23
500
$ 65,000
$ 0.1116782
$ 7,259.08
24
500
$ 65,000
$ 0.1015256
$ 6,599.16
Grand Total
$ 584,008.36
Now break even cost per hour = Present Value of the electtricity cost / Cost of the Bulb
= $ 584,008.36 / $ 3.85
= $ 151,690.5
Break even cost per kilowatt hour = $ 1,516.905
Decision:
For Situation 1 only CFL is financially viable but not for the nation and residential purpose.
Life
Hours per year
Amount at $ 0.04 per hour (A)
Present Value at 10% (B)
Total Amount (A * B)
1
500
$ 20,000
$ 0.9090909
$ 18,181.82
2
500
$ 20,000
$ 0.8264463
$ 16,528.93
Grand Total
$ 34,710.74
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.