Please Answer the questions for this case:

For the ESCO test market job, what is the present value of CFL bulbs to the hotel over the 15 years life of the fixtures? Energy savings and labor saving on bulb replacements, less the cost to retrofit all the fixtures, plus current expenditures for bulb replacement. This is the maximum price the hotel should be willing to pay BES for the conversion job.

What price should ONA charge BES for the CFL bulbs for the Copley Grand Hotel job?

What price should ONA charge the hotel for replacement bulbs?

The Energy Savings Converters (ESCO) Market Babson Energy Savers (BES) is a successful ESCO located in Wooster, MA. Its business is energy saving remodeling projects, such as heating and air conditioning systems, low voltage versus high voltage power conversions, and automatic switching controls. A small part of their current business involves saving building owners energy costs through conversion to fluorescent fixtures. For example, a fluorescent lamp, which consumes about 32 watts of power, provides the equivalent of 150 watts of incandescent light. The major drawbacks to fluorescent light are the high cost of the bulb, the harsh light and glare, and the bulky fixtures, which are awkward to install and service, and are very unattractive. CFL bulbs could create a new business opportunity for firms such as BES. CFLs small size and simple ballasting allow a much wider range of fixture design options than with fluorescent, as well as the huge energy savings and long life advantages. Once the idea was explained to them, the BES engineers shared ONA managements enthusiasm for the compact fluorescent lamp. BES felt that with proper pricing of the CFL lamp, the cost savings would be very attractive for many of their customers. In order to test the new product in this segment, ONA convinced BES to propose using CFL lighting as part of an overall energy savings project for one of Bostons old classic hotels, the Copley Grand. ONA would provide financing to the hotel for the cost of retrofitting existing fixtures (12% annual rate and payments over 15 years) through Siemens captive finance subsidiary. ONA would guarantee the hotel annual savings in power cost at least double the annual payment on the retrofitting loan. The hotel lighting configuration is as follows:

Rooms: 10 floors with 25 rooms per floor. Each room averages 200 occupied days per years. There are nine lights in each room (4 table or vanity, 3 overhead, and 2 wall) at 100 watts each (cost = $1.20 each). Average usage per room rental is a total of 7 hours. Halls: 10 floors with 24 overhead lights per floor (one 50 watt bulb each). Average usage of 24 hours per day. Bulb life for the hotel, using incandescent bulbs was 800 hours for room lamps and 1400 hours for hall lights. Turning bulbs on an off shortens the useful life. The cost of electricity in Boston is high, averaging $.14 per kilowatt-hour (kwh). In other parts of North America, power costs can be half that rate. The hotel was currently buying about 1900 bulbs/yr: 2250 room bulbs (250 9) at 5 year life per bulb (200 7 = 1400 9 = 155 vs. 800) = 450 bulbs/year 240 hall bulbs at 6 changes per year (8760 hrs 1400) = 1440 bulbs/year 450 + 1440 = ~1900 bulbs Bulbs are changed by the hotel maintenance staff as they burn out. BES Cost to Retrofit the Hotel Light Fixtures is as follows: A typical incandescent or fluorescent overhead fixture costs $7 for material (reflector, ballast, igniter and housing modifications) and one half hour of electrical technician labor at $18 per hour to retrofit for CFL use. To retrofit a table or vanity fixture costs $2.50 for material and one quarter hour of labor. Wall fixtures cost $3 for material and 40 minutes to retrofit. BES electrical technicians would do the conversion job. Lighting fixtures typically have a life of 15 years.