Question 1

The table below summarises the optimal cost of purchasing crude oil products for supply to the Fredonia state in the next 20 years

Year

Country

Number of ships

Total cost incurred

Saudi Arabia

USA

Australia

$481,300,000.00

Saudi Arabia

USA

Australia

$488,624,750.00

Saudi Arabia

USA

$502,140,936.25

Saudi Arabia

USA

$509,772,091.85

Saudi Arabia

USA

$517,529,783.73

Saudi Arabia

USA

$525,416,113.16

Saudi Arabia

USA

$533,433,216.40

Saudi Arabia

USA

$541,583,265.20

Saudi Arabia

Dubai

USA

Australia

$580,884,070.91

Saudi Arabia

USA

Australia

$589,320,247.09

Saudi Arabia

USA

$566,853,348.15

Saudi Arabia

USA

$575,557,628.43

Saudi Arabia

USA

$584,406,267.13

Saudi Arabia

Dubai

USA

Australia

$566,514,092.12

Saudi Arabia

USA

Australia

$578,475,346.31

Saudi Arabia

USA

Australia

$549,557,209.64

Saudi Arabia

USA

Australia

$558,094,003.10

Saudi Arabia

USA

$573,861,050.27

Saudi Arabia

USA

Australia

$550,425,147.55

Saudi Arabia

USA

$533,019,327.11

Question 2

A table summary of revenue and expenses generated from the oil supply

Year

Gasoline revenue

Diesel revenue

Refinery cost

Cost of purchases

Net Cashflow

-$10,000,000.00

$2,225,475,000.00

$762,431,250.00

$164,850,000.00

$481,300,000.00

$2,341,756,250.00

$2,301,775,410.38

$788,571,205.41

$167,322,750.00

$488,624,750.00

$2,434,399,115.78

$2,380,691,780.32

$815,607,369.18

$169,832,591.25

$502,140,936.25

$2,524,325,622.00

$2,462,313,798.01

$843,570,467.84

$172,380,080.12

$509,772,091.85

$2,623,732,093.88

$2,546,734,226.57

$872,492,281.33

$174,965,781.32

$517,529,783.73

$2,726,730,942.85

$2,634,049,009.53

$902,405,679.19

$177,590,268.04

$525,416,113.16

$2,833,448,307.52

$2,724,357,379.82

$933,344,657.90

$180,254,122.06

$533,433,216.40

$2,944,014,699.26

$2,817,761,972.59

$965,344,379.50

$182,957,933.89

$541,583,265.20

$3,058,565,153.00

$2,914,368,941.82

$998,441,211.55

$185,702,302.90

$580,884,070.91

$3,146,223,779.56

$3,014,288,080.99

$1,032,672,768.49

$188,487,837.44

$589,320,247.09

$3,269,152,764.94

$3,117,632,947.85

$1,068,077,954.35

$191,315,155.01

$566,853,348.15

$3,427,542,399.05

$3,224,520,993.46

$1,104,697,007.02

$194,184,882.33

$575,557,628.43

$3,559,475,489.72

$3,335,073,695.72

$1,142,571,543.91

$197,097,655.57

$584,406,267.13

$3,696,141,316.94

$3,449,416,697.38

$1,181,744,609.29

$200,054,120.40

$566,514,092.12

$3,864,593,094.15

$3,567,679,948.85

$1,222,260,723.22

$203,054,932.20

$578,475,346.31

$4,008,410,393.56

$3,689,997,855.90

$1,264,165,932.11

$206,100,756.19

$549,557,209.64

$4,198,505,822.18

$3,816,509,432.39

$1,307,507,861.10

$209,192,267.53

$558,094,003.10

$4,356,731,022.85

$3,947,358,458.28

$1,352,335,768.11

$212,330,151.54

$573,861,050.27

$4,513,503,024.58

$4,082,693,643.02

$1,398,700,599.92

$215,515,103.82

$550,425,147.55

$4,715,453,991.58

$4,222,668,794.57

$1,446,655,049.99

$218,747,830.37

$533,019,327.11

$4,917,556,687.08

At a discount rate of 10%, the Net Present Value (NPV) is given as

NPV

$26,116,989,970.34

While the is

IRR

23419.58%

Question 3

At 6% the NPV is $36,796,298,366.68, this value is greater than 0 hence the project is profitable.

On the other hand, at 12% the NPV is obtained as $22,455,372,302.21 which is also greater than 0. This means the project will be profitable will remain profitable when the rate of discount fluctuates between 6% and 12%

Increase in the cost of capital budgeting decreases the NPV while a decrease increases the NPV. The initial capital outlay is negatively proportionate to the profitability of the project.

In cases where the price of gasoline only increases by 1.2% NPV will drop to $25,966,112,240.31. This indicates a fall in the level of profitability by 0.5777%.

The maximum number of ships that the firm will need from Saudi Arabia in a single year will be 7. A drop in the maximum number of ships available from Saudi Arabia from 20 to 14 still allows the firm to obtain 7 ships. This means there will be no impact on profitability as the firm will not need to review its crude oil supply structure.

The increase in shipment cost from Australia from $ 1.8 to $ 2.5 per barrel will increase the cost of purchases which in turn will leads to a drop in the profits of the refinery products.

References

1. Allen-Zhu, Z. & Orecchia, L., 2015. Using Optimization to Break the Epsilon Barrier: A Faster and Simpler Width-Independent Algorithm for Solving Positive Linear Programs in Parallel.s.l.:ACM-SIAM Symposium.
2. Gerard, S. & Ghosh, D., 2010. Networks in; Springer, Text and Computer Exercises inComputer NetworkOptimization,s.l.: Springer.
3. Sierksma, G. & Zwols, Y., 2015. Linear and Integer Optimization.Third ed. s.l.:CRC Press.