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 $0.49 and lasts 1,000 hours. A 15-watt CFL, which provides the same light, costs $3.60 and lasts for 12,000 hours. A kilowatt-hour of electricity costs $0.125, 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 bulb $? Compact fluorescent lamps $?

Explanation / Answer

As seen from the question, same annual cost incurred due to same uses during the year and same cost incurred under both of the case. If cost structure could be different, then annual equivlent cost may be different.

60-Watt light bulb: 15-Watt CFL: uses 1000 hours 12000 Hours Annual uses 500 Hours 500 Hours No. of years it will used 2 24 Kilowaatt-hour cost 0.125 0.125 Annual cost 62.5 62.5 Cumulative discount factor for 2 years (11%) 1.713 Cumultaive discount factor Cumulative discount factor for 24 years (11%) 8.348 = (1-(1+i)^-n)/i Present value of annual cost 107.0625 521.75 Cumulative discount factor 1.713 8.348 Annual equivlent cost 62.5 62.5

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