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

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 36,000 gallons per 1,000 hours of operation at the average load encountered in passenger service. System B costs $290,000 and uses 31,000 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 $1.89 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 the firm install? Assume 4,000 hours of operation per year and a MARR of 14%. 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 = 14% per year. Single Payment Compound Present Compound Sinking Present Amount Worth Amount Fund Worth Equal Payment Series Capital Recovery Factor Factor Factor Factor Factor Factor N (F/P, i, N) (P/F, i, N) (F/A, i, N) (A/F, i, N) (P/A, i, N) (A/P, i, N) 1 1.1400 0.8772 1.0000 1.0000 0.8772 1.1400 2 1.2996 0.7695 2.1400 0.4673 1.6467 0.6073 3 1.4815 0.6750 3.4396 0.2907 2.3216 0.4307 4 1.6890 0.5921 4.9211 0.2032 2.9137 0.3432 5 1.9254 0.5194 6.6101 0.1513 3.4331 0.2913 7 8 10 6649 o 2.1950 0.4556 8.5355 0.1172 3.8887 0.2572 2.5023 0.3996 10.7305 0.0932 4.2883 0.2332 2.8526 0.3506 13.2328 0.0756 4.6389 0.2156 3.2519 0.3075 16.0853 0.0622 4.9464 0.2022 3.7072 0.2697 19.3373 0.0517 5.2161 0.1917 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 36,000 gallons per 1,000 hours of operation at the average load encountered in passenger service. System B costs $290,000 and uses 31,000 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 $1.89 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 the firm install? Assume 4,000 hours of operation per year and a MARR of 14%. 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 = 14% per year. Single Payment Compound Present Compound Sinking Present Amount Worth Amount Fund Worth Equal Payment Series Capital Recovery Factor Factor Factor Factor Factor Factor N (F/P, i, N) (P/F, i, N) (F/A, i, N) (A/F, i, N) (P/A, i, N) (A/P, i, N) 1 1.1400 0.8772 1.0000 1.0000 0.8772 1.1400 2 1.2996 0.7695 2.1400 0.4673 1.6467 0.6073 3 1.4815 0.6750 3.4396 0.2907 2.3216 0.4307 4 1.6890 0.5921 4.9211 0.2032 2.9137 0.3432 5 1.9254 0.5194 6.6101 0.1513 3.4331 0.2913 7 8 10 6649 o 2.1950 0.4556 8.5355 0.1172 3.8887 0.2572 2.5023 0.3996 10.7305 0.0932 4.2883 0.2332 2.8526 0.3506 13.2328 0.0756 4.6389 0.2156 3.2519 0.3075 16.0853 0.0622 4.9464 0.2022 3.7072 0.2697 19.3373 0.0517 5.2161 0.1917

Answer rating: 100% (QA)

To calculate the margin of safety for Molander Corporation we ne... View the full answer