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Den-Tex Company is evaluating a proposal to replace its HID (high intensity discharge) lighting with LED (light emitting diode) lighting throughout its warehouse. LED lighting consumes less power and lasts longer than HID lighting for similar performance. The following information was developed: HID watt hour consumption per fixture 500 watts per hr. LED watt hour consumption per fixture 300 watts per hr. Number of fixtures 700 Lifetime investment cost (in present value terms) to replace each HID fixture with LED $500 Operating hours per day 10 Operating days per year 300 Metered utility rate per kilowatt-hour (kwh)* $0.11
*Note: A kilowatt-hour is equal to 1,000 watts per hour.
a. Determine the investment cost for replacing the 700 fixtures.
$?
b. Determine the annual utility cost savings from employing the new energy solution.
$?
c. Evaluate the proposal using net present value, assuming a 15-year life and 8% minimum rate of return. (Click here to view Present Value of Ordinary Annuity.)
$?

Sagot :

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Answer:

a. Investment cost of replacing one fixture = $500

Number of fixtures = 700

Investment cost of replacing 700 fixtures = $500 * 700

Investment cost of replacing 700 fixtures = $350,000

b. Total Hours annually = Operating hours per day 8 Operating days per year = 10 * 300 = 3000 hours

Utility cost per kilowatt hour = $0.11

Savings in consumption per hour per fixture = 500 watts - 300 watts = 0.2 kilowatt per hour

Annual Savings in utility cost = Savings in consumption per hour * Total Hours * Utility cost * Number of fixtures

Annual Savings in utility cost = 0.2 * 3000 * 0.11 * 700

Annual Savings in utility cost = $46,200

c. Net present Value = PV of Annual Savings - Initial Investment

When Annual Savings = $46,200, Initial Investment = $350,000, Cumulative discounting factor of 8% for 15 years = 8.5595

Net present Value = ($46,200 * 8.5595) - $350,000

Net present Value = $395,448.90 - $350,000

Net present Value = $45,448.90

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