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 ​$2.002.00 each will provide the same illumination as standard​ 60-Watt ILBs costing ​$0.500.50 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 ​$2.002.00 to​ install/replace. Installation of a single CFL costs ​$3.003.00​, and it will also be used​ 1,000 hours per year. Electricity costs ​$0.120.12 per kiloWatt hour​ (kWh), and you decide to compare the two lighting options over an​ 8-year study period. If the MARR is 1212​% 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.

Answer 1

Answer: Option C is most reasonable here.

Explanation:

Variable Price of Bulb A = $ 15,000

Variable Price of Bulb B = $ 28,000

Variable Price of Bulb C = $ 16,200

Fixed Price of Bulb A = $ 15,000

Fixed Price of Bulb B = $ 30,000

Fixed Price of Bulb C = $ 25,000

Total Price of Bulb A = $30,000

Total Price of Bulb B = $ 58,000

Total Price of Bulb C = $ 41,200

Profit= Revenue - Expenses

Profit of Bulb A = $ 16,500

Profit of Bulb B = $ 30,000

Profit of Bulb C = $ 25,400

Initial Investment of Bulb A = $ 30,000

Initial Investment of Bulb B = $ 60,000

Initial Investment of Bulb C = $ 40,000

Hence, Bulb C is most profitable.