"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 $112,000 and uses 40,000 gallons of fuel per 2,000 hours of operation at the average load encountered in passenger service.
SYSTEM B costs $224,000 and uses 33,000 gallons of fuel per 2,000 hours of operation at the same level.
Both engine systems have three-year lives. Each system's salvage value is 11.8% of its initial investment. If jet fuel currently costs $2.48 a gallon and fuel consumption is expected to increase at the rate of 6.8% 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 10.6%. Use the annual equivalent cost criterion. What is the annual equivalent cost of the preferred engine?"