An airline is considering two types of engine systems

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Reference no: EM131502839

"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 160kL per 1000 hours of operation at the average load encountered in passenger service. System B costs $200,000 and uses 128kL per 1000 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 $1/L 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 2000 hours of operation per year and a MARR of 10%. Use the annual equivalent criterion."

Reference no: EM131502839

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