Question

Compact fluorescent lamps (CFL) have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbuld costs $.45 and lasts for 1,000 hours. A 15-Watt CFL, which provides the same light cast $3.40 and lasts for 12,000 hours. A kilowatt-hour of electricity costs $ .121, which is about the national average. A Kilowatt-hour is 1,000 watts for 1 hour. If you require a 10 percent return and use a light fixture 500 hours per year, what is the equivalent annual cost of each lightbuld?

Answer 1

60 watt incandescent light buld :

Cost at Year 0 = $0.45

Year 1 = [(60 * 500) / 1000] * $0.121 = $3.63

Present value = $3.63/(1+0.10) = $3.30

Year 2 = [(60 * 500) / 1000] * $0.121 = $3.63

Present Calue = $3.63/(1+0.10) ^2 =$3

Equivalant annual cost = ($0.45 + $3.3.+$3.00) / 3 = $2.25

For 15 watt CFL :

Annual cost Year 0 : $3.40

Year 1 : [(15*500) / 1000 ] * $0.121 = $0.9075

Present value : $0.9075 / (1+0.10) = $0.825

Year 2 : [(15*500) / 1000 ] * $0.121 = $0.9075

Present value : $0.9075 / (1+0.10) ^ 2 = $0.75

.....

Year 24 : [(15*500) / 1000 ] * $0.121 = $0.9075

Present value : $0.9075 / (1+0.10)^24 = $0.0921

Total cost = $3.40 + $0.825 + $0.75 + ...... + $0.0921 = $11.5537

Equivalant annual cost = $11.5537/12 = $0.96