1. An airline is considering two types of engine systems for use in its planes:
   • System A costs $120,000 and uses 30,000 gallons of fuel per 1000 hours of operation at the average load encountered in passenger service.
   • System B costs $180,000 and uses 25,000 gallons of fuel per 1,000 hours of operation at the average load encountered in passenger service.

Both engine systems have the same life and the same maintenance and repair record, and both have a two-year life before any major overhaul is required. Each system has a salvage value of 10% of the initial investment. If the jet fuel costs $3.50 per gallon currently and fuel consumption is expected to increase at the rate of 3% per year because of degrading engine efficiency, which engine system should be the firm install? Assume 2,000 hours of operation per year and MARR of 12%. Using the AE criterion, what is the equivalent operating cost per hour for each engine?