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 fixture500watts per hr.LED watt hour consumption per fixture300watts per hr.Number of fixtures700 Lifetime investment cost (in present value terms)to replace each HID fixture with LED$500 Operating hours per day10 Operating days per year300 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.$Evaluate the proposal using net present value, assuming a 15-year life and 8% minimum rate of return. (Click here to view Present Value of Ordinary Annuity.)$

NPV is commonly used in capital budgeting and investment analysis to compare different investment…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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.
$

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.)
$

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