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 $90,000 and uses 37,000 gallons per 1,000 hours of operation at the average load encountered passenger service. System B costs $250,000 and uses 26,000 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 18% salvage values. If jet fuel costs $1.87 a gallon (year 1) and fuel consumption expected to increase at the rate of 11% per year because of degrading engine efficiency, which engine system s the firm install? Assume 3,000 hours of operation per year and a MARR of 9%. 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. Click the icon to view the interest factors for discrete compounding when MARR = 9% per year. The equivalent annual costs for system A are $ *** (Round to the nearest dollar.)
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 $90,000 and uses 37,000 gallons per 1,000 hours of operation at the average load encountered passenger service. System B costs $250,000 and uses 26,000 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 18% salvage values. If jet fuel costs $1.87 a gallon (year 1) and fuel consumption expected to increase at the rate of 11% per year because of degrading engine efficiency, which engine system s the firm install? Assume 3,000 hours of operation per year and a MARR of 9%. 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. Click the icon to view the interest factors for discrete compounding when MARR = 9% per year. The equivalent annual costs for system A are $ *** (Round to the nearest dollar.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 $90,000 and uses 37,000 gallons per 1,000 hours of operation at the average load encountered in
passenger service.
System B costs $250,000 and uses 26,000 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 18% salvage values. If jet fuel costs $1.87 a gallon (year 1) and fuel consumption is
expected to increase at the rate of 11% per year because of degrading engine efficiency, which engine system should
the firm install? Assume 3,000 hours of operation per year and a MARR of 9%. 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.
4
Click the icon to view the interest factors for discrete compounding when MARR = 9% per year.
****
The equivalent annual costs for system A are $. (Round to the nearest dollar.)
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