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 $120,000 and uses 35,000 gallons per 1,000 hours of operation at the average load encountered in passenger service.

System B costs $310,000 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 12%

salvage values. If jet fuel costs $2.26 a gallon (year 1) and fuel consumption is expected to increase at the rate of

7% per year because of degrading engine efficiency, which engine system should the firm install? Assume 5000

hours of operation per year and a MARR of 8%.

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

The equivalent annual costs for system A are ?

The equivalent annual costs for system B are ?

$