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 5 million and uses 48,000 liters per 1,000 hours of operation at the average load encountered in passenger service.System B costs 10 million and uses 38,400 liters per 1,000 hours of operation at the same level. Both engine systems have 3-year lives before any major overhaul. Based on the initial investment, the systems have 10% salvage values. If jet fuel costs 108 a liter, and fuel consumption is expected to increase at the rate of 6% each year due to degrading engine efficiency, which engine system should the firm install? Assume 2,000 hours of operation per year, and a MARR of 10%.

System A cost = 5 million Uses 48000 hours of liters in 1000 hours System operates 2000 hours in a…

Answered: An airline is considering two types of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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 5 million and uses 48,000 liters per 1,000 hours of operation at the average load encountered in passenger service.
System B costs 10 million and uses 38,400 liters per 1,000 hours of operation at the same level.

Both engine systems have 3-year lives before any major overhaul. Based on the initial investment, the systems have 10% salvage values. If jet fuel costs 108 a liter, and fuel consumption is expected to increase at the rate of 6% each year due to degrading engine efficiency, which engine system should the firm install? Assume 2,000 hours of operation per year, and a MARR of 10%.

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