Question
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
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 ?
$
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started