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 lightbulb costs $0.55 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs $3.90 and lasts for 12,000 hours. A kilowatt hour of electricity costs $0.131, 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 11 percent and use a light fixture 500 hours per year. What is the break-even cost per kilowatt-hour?

Explanation / Answer

Return required (Net Income) = 11%

Light Fixture = 500 hours per year

In order to break even, the costs should be equal to revenue

We assume that a typical 60-watt incandescent light bulb is used

Let the units sold be X

0.55X - (1000 X 1000 X .131) = 11% of 0.55 X

Therefore, X = $ 131,000 / .4895 = 267,620 units sold

The break even cost per kilowatt hour = $ 131,000 / 1000 = $ 131 per kilowatt hour.

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