Question

Please show all work.

A light-emitting diode (LED) is a semiconductor diode that emits narrow-spectrum light. Although relatively expensive when compared to incandescent bulbs, they use significantly less energy and last six to ten times longer, with a slow decline in performance rather than an abrupt failure. Metropolitan City currently has 80,000 incandescent bulbs in traffic lights at approximately 12,000 intersections. It is estimated that replacing all the incandescent bulbs with LED will cost $39.8 million. However, the investment is also estimated to save the City $7.65 million per year in energy costs. a. Determine the payback period of converting Metropolitan City traffic lights to LEDs. Round answer to one decimal place. 5.2 years b. If the average life of an incandescent streetlight is one year and the average life of an LED streetlight is seven years, should the City finance the investment in LED's at an interest rate of five percent per year? Justify your answer. 1. Compute the internal rate of return on the project. Round to the nearest whole percent. X %

Answer 1

The IRR of the replacement as per below working is 3.254% and the interest rate is 5%.

Therefore, the replacement proposal to LED should be dropped.

Soluti n Dala Auufe of treti Aug fe ofLED Replacemont Sainp.a= 39. &mn Cost mn Anlereat rala p.a Inlevnak Rate of Retun '. Soital gnvertm ent Preront rales of 8auin rm LED Present value f enefit १ भु- . 65 339. 8 mn 1 (14r) 3. 254 RR = 3.20 Monually Year IRRC Cash flow (329.&ma.) 3(765-3-6)mn eee (s2.8) (s१.४) (3१. ४ mn) O ने2 7trit a.169 6939 2 6.60 .9u0 3 6.न।४- 6.2१ ५ 6.80 6.504 G.60 5११५ 6.4 6.29 6 5. 709 765 G.09S 6.22 7.65 tshs (0.0) (2 .&19) 3 = 5 O.44 2 3१.8 CS Saaned with CamScanner