11th Edition

ISBN: 9780077861704

Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor

Publisher: McGraw-Hill Education

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Textbook Question

Chapter 10, Problem 28QP

Issues in Capital Budgeting [LO1] The debate regarding CFLs versus incandescent bulbs (see Problems 25–27) has even more wrinkles. In no particular order:

1. Incandescent bulbs generate a lot more heat than CFLs.

2. CFL prices will probably decline relative to incandescent bulbs.

3. CFLs unavoidably contain small amounts of mercury, a significant environmental hazard, and special precautions must be taken in disposing of burned-out units (and also in cleaning up a broken lamp). Currently, there is no agreed-upon way to recycle a CFL. Incandescent bulbs pose no disposal/breakage hazards.

4. Depending on a light’s location (or the number of lights), there can be a nontrivial cost to change bulbs (i.e., labor cost in a business).

5. Coal-fired power generation accounts for a substantial portion of the mercury emissions in the U.S., though the emissions will drop sharply in the relatively near future.

6. Power generation accounts for a substantial portion of CO₂ emissions in the U.S.

7. CFLs are more energy and material intensive to manufacture. On-site mercury contamination and worker safety are issues.

8. If you install a CFL in a permanent lighting fixture in a building, you will probably move long before the CFL burns out.

9. Another lighting technology based on light-emitting diodes (LEDs) exists and is improving. LEDs are currently much more expensive than CFLs, but costs are coming down. LEDs last much longer than CFLs and use even less power. Plus, LEDs don’t contain mercury.

Qualitatively, how do these issues affect your position in the CFL versus incandescent lightbulb debate? Some countries have banned incandescent bulbs. Does your analysis suggest such a move is wise? Are there other regulations short of an outright ban that make sense to you?

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Chapter 10, Problem 27QP

Chapter 10, Problem 29QP

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Solution Summary: The author explains how the issues affect Person X's position on the debate regarding the compact fluorescent lamps versus the incandescent bulbs.

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