An airline is considering two types of engine systems for use in its planes. Each has the same life and the same maintenance and repair record.

System A costs $110,000 and uses 39,000 gallons per 1,000 hours of operation at the average load encountered in passenger service.

System B costs $320,000 and uses 31,000 gallons per 1,000 hours of operation at the same level.

Both engine systems have three-year lives before any major overhaul is required. On the basis of the initial investment, the systems have 9% salvage values. If jet fuel costs $2.34a gallon (year 1) and fuel consumption is expected to increase at the rate of 12% per year because of degrading engine efficiency, which engine system should the firm install? Assume 3,000 hours of operation per year and a MARR of 15%. Use the AE criterion. What is the equivalent operating cost per hour for each engine?

Assume an end-of-year convention for the fuel cost.

10 Single Payment Compound Present Amount Worth Factor Factor (F/P, i, N) (P/F, i, N) 1.1 500 0.8696 3225 0.7561 5209 0.6575 1.7490 0.5718 0.4972 2.0114 2.3131 0.4323 3.0590 0.3269 3.5179 0.2472 Equal Payment Series Compound Sinking Present Capital Amount Fund Worth Recovery Factor Factor Factor Factor (FA, i, N) (A/F, i, N) (PA, i, N) (A/P, i, N) 0.8696 0000 1.0000 1.1500 0.4651 1.6257 2.1500 0.6151 3.4725 2.2832 0.4380 0.2880 4.9934 2.8550 0.2003 0.3503 6.7424 3.3522 0.1483 0.2983 8.7537 0.2642 11.0668 0.0904 13.7268 0.0729 16.7858 0.0596 4.7716 20.3037 0.0493 5.0188 0.1993