Accounting

The Assignment
You are a relatively new employee at a small technology start-up. The company is only a year or two old and has its offices in a converted medical office that
was built in the 1970s. The office space is dated but the rent is low, which makes it very attractive. The company rents 3,000 square feet (278 square meters)
of space. The building was built before daylighting was a big design feature of offices, so it tends to be dark throughout the day. Right now the lighting is a
mix of incandescent, long fluorescent tube ceiling lights and a few compact fluorescent bulbs. There are about 100 light fixtures that will have their current
bulbs replaced with LED equivalents. The new LED bulbs will provide the same light as the old bulbs but use a fraction of the electricity. Because some of the
long tube fluorescent bulbs will have to be rewired to accept the LED tubes, an electrical will rehired to help with the installation. This analysis estimates the
electricity, and thereby the financial, savings from making the switch. In a separate assignment we will complete a financial analysis to see if this project is
profitable for the company to pursue.
Baseline Information
The ceiling lights are on 10 to 14 hours a day as employees have flexible work schedules; some coming in early other staying late. Some people come into
the office over weekends and a few safety lights are left on 24 hours a day. You estimate that on average lights are on about 12 hours a day for 330 days a
year.
An examination of a sample of the different types of existing light bulbs shows that the average wattage of the bulbs is about 60 watts. The company pays
11.2¢ per kWh for electricity.
1) Compute the baseline cost
Given this usage, wattage and cost information compute the cost per year and per month for electricity to power the lighting system.
2) Estimate the savings
Before we invest in the new bulbs we would like to know whether this is a profitable investment. The information we need to do that type of analysis is the
cost of the investment and the savings it produces. We will compute the savings here and do the financial analysis in Week 3 of the class.
You have created a list of the various types of bulbs (lumens or wattage equivalent and bulb or tube) that are needed for the replacement project. The
average wattage of this mix of bulbs, weighted by hours of use, is 32 watts. The LED equivalent for the 100-watt 4-foot long fluorescent bulbs in the ceiling
fixtures uses about 44 watts and the LED equivalent for old 100-watt screw-in bulb uses about 15 watts. Overall, the new system will use about 32 watts per
fixture.
Using the usage and cost data from the baseline compute the cost per year and per month for electricity to power the lighting system if all the bulbs are
repacked with their LED equivalents.
3) Estimate the reduction in CO2 emissions
The cost savings to the company are a private benefits of switching to LED bulbs. There is also a social benefit because using less electricity means fewer
CO2 emissions. We can estimate the reduction in CO2 emissions using the following procedure.
• Estimate the total kWh used by the original lighting system.
• Estimate the total kWh used by the lighting system if the bulbs are replaced by their LED equivalents.
• According to the CarbonFund ( https://carbonfund.org/how-we-calculate/), “On average, electricity sources emit 1.222lbs CO2 per kWh (0.0005925 metric
tons CO2 per kWh). Use this conversion factor to estimate the reduction in CO2 emissions.