Basic Investment Method Question #2

Assume that a light bulb has an average life of 22,000 hours where a fifth of the bulbs fail at 20, 21 , 22 , 23 and 24 thousand hours. The facility that uses this lighting fixture operates every hour of the year and the bulbs are always ON. Each bulb costs P157.5 to buy, P67.5 to install individually and P11.25 to install in bulk replacement. At least 60% of the bulbs must be operating for adequate light. The firm's interest rate is 10%. Compare bulk replacement at 21,000 hours with individual replacement. Use Annual cost method.