An airline is considering two types of engine systems for use in its planes. Eac

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 record. System A costs $80,000 and uses 36,000 gallons per 1,000 hours of operation at the average load encountered in passenger service System B costs $260,000 and uses 27,000 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 15% salvage values. If jet fuel costs $2.02 a gallon (year 1) and fuel consumption is expected to increase at the rate of 5% per year because of degrading engine efficiency, which engine system should he firm install? Assume 3,000 hours of operation per year and a MARR of 15%. 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.

Explanation / Answer

Particulars System A PV value System B PV value Cost 80000 80000 260000 260000 fuel 1 year 218160 189704.3 163620 142278.2 2 year 229068 173208.3 171801 129906.3 3 year 240521.4 158146.7 180391.1 118610 Slavage value 12000 7890.195 39000 25643.12 Total cost for 3 year 593169.2 625151.4 Equated annual cost 259794.5 273801.9 Equivalent annual cost per hour 86.59815 91.26731 Firm should instal system A as cost is least in it.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.