Question

Light emitting diodes (LED) light bulbs have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.43 and lasts 1,000 hours. A 15-watt LED, which provides the same light, costs $3.30 and lasts for 12,000 hours. A kilowatt-hour of electricity costs $.119. 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? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) 60-watt incandescent light bulb LED light bulb

Answer 1

60-watt incandescent bulb 15-watt LED 0.43 3.3| 6.20 - M70 One bulb cost Add: PV of electricity costs for 2 years Add: PV of electricity costs for 24 years Total present value of costs PVAIF(9%,2) PVAIF(9%,24) 8.02 11.32 6.63 1.735 8.985 Equivalent annual cost 3.82 $ 1.26 11

Excel formula:

_ A 60-watt incandescent bulb 0.43 =PV(10%,1000/500,-(500*60/1000)*0.119) 15-watt LED 3.3 One bulb cost Add: PV of electricity costs for 2 years Add: PV of electricity costs for 24 years Total present value of costs PVAIF(9%,2) PVAIF(9%,24) =PV(10%,12000/500,-(500*15/1000)*0.119) =D3+D5 =C3+C4 1.735 8.985 Equivalent annual cost =C6/c7 =D6/D8