Your boss has asked you to evaluate the economics of replacing 1,000 60-Watt inc

Question

Your boss has asked you to evaluate the economics of replacing 1,000 60-Watt incandescent light bulbs (ILBs) with 1,000 compact fluorescent lamps (CFLs) for a particular lighting application. During your investigation you discover that 13-Watt CFLs costing $1.90 each will provide the same illumination as standard 60-Watt ILBs costing $0.45 each. Interestingly, CFLs last, on average, eight times as long as incandescent bulbs. The average life of an ILB is one year over the anticipated usage of 1,000 hours each year. Each incandescent bulb costs $2.10 to install/replace. Installation of a single CFL costs $3.10, and it will also be used 1,000 hours per year. Electricity costs $0.13 per kiloWatt hour (kWh), and you decide to compare the two lighting options over an 8-year study period. If the MARR is 10% per year, compare the economics of the two alternatives and write a brief report of your findings for the boss. Assume that both installation cost and cost of the bulbs occur at the beginning of each year and that the electricity expense is incurred at the end of each year for eight years.

Explanation / Answer

For property 1: 85469.22 need to be set aside today and for property2: 103447.8 need to be set aside today

EOY1 EOY2 EOY3 EOY4 EOY5 EOY6 EOY7 EOY8 EOY9 EOY10 Property 1: Property taxes 15000 15600 16200 16800 17400 18000 18600 19200 19800 20400 Present value factor @15% 0.869565 0.756144 0.657516 0.571753 0.497177 0.432328 0.375937 0.326902 0.284262 0.247185 Present value 13043.48 11795.84 10651.76 9605.455 8650.875 7781.897 6992.429 6276.514 5628.396 5042.568 Total present value 85469.22 Property 2: Property taxes 13000 15250 17500 19750 22000 24250 26500 28750 31000 33250 Present value factor @15% 0.869565 0.756144 0.657516 0.571753 0.497177 0.432328 0.375937 0.326902 0.284262 0.247185 Present value 11304.35 11531.19 11506.53 11292.13 10937.89 10483.94 9962.332 9398.426 8812.135 8218.891 Total present value 103447.8

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