Compact fluorescent lamps (CFLs) have become required in recent years, but do th

Question

Compact fluorescent lamps (CFLs) have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.40 and lasts 1,000 hours. A 15-watt CFL, which provides the same light, costs $3.15 and lasts for 12,000 hours. A kilowatt-hour of electricity costs $.116, which is about the national average. A kilowatt-hour is 1,000 watts for 1 hour. If you require a return of 10 percent 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.)

Compact fluorescent lamps (CFLs) have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.40 and lasts 1,000 hours. A 15-watt CFL, which provides the same light, costs $3.15 and lasts for 12,000 hours. A kilowatt-hour of electricity costs $.116, which is about the national average. A kilowatt-hour is 1,000 watts for 1 hour. If you require a return of 10 percent 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.)

Explanation / Answer

Incandescent Light bulb:

At 500 hours per year

60 watts per hour

Total usage = 500 hours x 60 watts = 30,000 watts

Kilowatt hour is = 1000 watts

Kilowatts hour is = 30,000/1000 = 30 kwh

Operating cost per year = 30kwh x $0.116 = $3.48

Life = 1000 hours/500 hours per year = 2 years

Annuity factor = 1 x (1+0.10)2- 1/0.10(1+0.10)2 = 1 x 0.21/0.10 (1.21) = 0.21/0.121 = 1.735537

Equivalent Annual Cost (EAC) = Cost/Annuity factor + Operating cost

                                                 = $0.40/1.735537 + 3.48

                                                 = 0.23+3.48

                                       EAC = $3.71

EQUIVALENT ANNUAL COST OF CFL:

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