Question
I am haveing a lot of trouble with the following question and need help on how to solve it: An airline is considering two types
I am haveing a lot of trouble with the following question and need help on how to solve it:
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 36,000 gallons per 1,000 hours of operation at the average load encountered in passenger service. System B costs $330,000 and uses 30,000 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 19% salvage values. If jet fuel costs $2.27 a gallon (year 1) and fuel consumption is expected to increase at the rate of 9 % per year because of degrading engine efficiency, which engine system should the firm install? Assume 5,000 hours of operation per year and a MARR of 14%. 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 $
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