Problem:

Compact fluorescent lamps (CFLs) have become more popular in recent years, but do they make financial sense? Suppose a typical 60-watt incandescent lightbulb costs $0.47 and lasts for 1,000 hours. A 15-watt CFL, which provides the same light, costs $3.50 and lasts for 12,000 hours. A kilowatt hour of electricity costs $0.123, which is about the national average. A kilowatt-hour is 1,000 watts for 1 hour. However, electricity costs actually vary quite a bit depending on location and user type. An industrial user in West Virginia might pay $0.04 per kilowatt-hour whereas a residential user in Hawaii might pay $0.25.

Required:

Question: You require a return of 9 percent and use a light fixture 500 hours per year. What is the break-even cost per kilowatt-hour?

Note: Please explain comprehensively and give step by step solution.