Light-emitting diode (LED) light bulbs have become required in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent light bulb costs $.45 and lasts for 1,000 hours. A 7-watt LED, which provides the same light, costs $2.25 and lasts for 40,000 hours. A kilowatt-hour of electricity costs $.121, which is about the national average. A kilowatt-hour is 1,000 watts for 1 hour. However, electricity costs actually vary quite a bit depending on location and user type (you can get information on your rates from your local power company). An industrial user in West Virginia might pay $.04 per kilowatt-hour whereas a residential user in Hawaii might pay $.25. You require a 10 percent return and use a light fixture 500 hours per year. What is the break-even cost per kilowatt-hour?

(A) For incandescent bulb, your break even cost is $32.67

(B) With LED bulb, your break even cost is $3.8115

Conclusion: It makes financial sense to use LED bulbs.

Explanation:

We start by checking the cost of your electricity bill when you use incandescent bulb and when you use LED bulb.

Since your answers are to be in kilowatt hour, we transform the watt measurement of the bulbs into kilowatt thus:

60watt incandescent bulb = 0.06kw

7watt led bulb = 0.007kw

National average cost of electricity per kilowatt hour is $1.21

Cost per kWh using incandescent bulb is 1.21 × 0.06 = $0.0726

Cost per kWh using led bulb is 1.21 × 0.007 = $0.00847

(A) WITH INCANDESCENT

0.06kw × 500hrs/year = 30kwhrs/year

Cost of electricity bill = 1.21 × 30 =$36.3

Your 10% return = $3.63

Break even cost per year, in kWh is = 36.3 - 3.63 = $32.67

(B) WITH LED

0.007kw × 500hrs/year = 3.5kwhrs/year

Cost of electricity bill = 1.21 × 3.5 = $4.235

Your 10% return = $0.4235

Break even cost per year in kWh is = 4.235 - 0.4235

(C) The incandescent bulb costs $0.45 but draws you a bill of $32.67 a year WHILE the led bulb costs $2.25 but draws you a bill of $3.8115

We conclude hence, that light-emitting diode bulbs make financial sense. Overlook the cost of purchasing the bulb because it uses less kilowatts per hour and draws you a very low bill, compared to the incandescent bulb!

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