An airline is considering two types of enginesystems for use in its planes. Each has the same lifeand the same maintenance and repair record.• System A costs $100,000 and uses 40,000 gallonsper 1,000 hours of operation at the average loadencountered in passenger service.• System B costs $200,000 and uses 32,000 gallonsper 1,000 hours of operation at the same level.Both engine systems have three-year lives before anymajor overhaul is required. On the basis of the initialinvestment, the systems have 10% salvage values. Ifjet fuel currently costs $2.10 a gallon and fuel consumption is expected to increase at the rate of 6% peryear because of degrading engine efficiency, whichengine system should the firm install? Assume 2,000hours of operation per year and an MARR of 10%.Use the AE criterion. What is the equivalent operating cost per hour for each engine?
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 $100,000 and uses 40,000 gallons
per 1,000 hours of operation at the average load
encountered in passenger service.
• System B costs $200,000 and uses 32,000 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 10% salvage values. If
jet fuel currently costs $2.10 a gallon and fuel consumption is expected to increase at the rate of 6% per
year because of degrading engine efficiency, which
engine system should the firm install? Assume 2,000
hours of operation per year and an MARR of 10%.
Use the AE criterion. What is the equivalent operating cost per hour for each engine?
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