Compact fluorescent lamps (CFLs) have become more popular in recent years, but d

Question

Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $0.52 and lasts 1,000 hours. A 15-watt CFL, which provides the same light, costs $3.75 and lasts for 12,000 hours. A kilowatt-hour of electricity costs $0.128, which is about the national average. A kilowatt-hour is 1,000 watts for 1 hour. If you require a 11 percent return and use a light fixture 500 hours per year, what is the equivalent annual cost of each light bulb? (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places. (e.g., 32.16))

Equivalent annual cost

60-watt incandescent light buld $ ????

Compact fluorescent lampts $?????

Explanation / Answer

Cashflow: Incandescent light bulb
Total number of hours it will last = 1000 hours
Usage per year = 500 hours
No. of years it will be used = 1000/500 = 2 years

Cashflow every year = Watts consumed * Hours used * Electricity Cost
Watts consumed = 60
Hours used = 500
Electricity Cost = $0.128
Cashflow every year for 2 years = 60 * 500 * 0.128 = $0.96

Equivalent Uniform Cost = NPV

Year Cashflow PV Factor @ 11% Present Value 0 -0.52 1 -0.52 1 -3.84 0.900900901 -3.459459459 2 -3.84 0.811622433 -3.116630144 Net Present Value -7.096089603

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