Introduction to Quantitative Management - Essay Example

at in deed the company can be able to utilise its un used crude oil to meet up the needs of the new contract which promises to be buying the Hi-Grade petrol and one which happens to be the most profitable. This means that maximising on the Hi-grade petrol which has the largest profit margin would that the company would be able to make the largest profit margin. The new contract on the other hand promises $1,336,500 from just making 14850 barrels of Hi-Grade petrol. This is at a slightly higher profit per barrel for the new contact with is standing at $90 as opposed to the $85.

98average per barrel for the first contract meaning that the company should continue with the new contract. To determine the cost of a barrel of each grade of the petrol produced, this is done by determining cost of the component barrel. For example standard grade of petrol is produced by mixing 14% of crude type A. this means that14% of the standard petrol grade consist of type A crude. This is equal to 14% of one barrel of a type A which is cost14% of the cost of 93.5.this results to the following figures With a total expect profit margin of $2.

3456 million, then the company can go ahead and initiate the project since there are positive expected cash flows from the projects. Building a medium park of 180 units however, remains to be the best contributor to the positive expected cash flows from the project. This means that were the projections determined to be true and fair then setting out such a plan would be best option. This would thus mean if the company decided not to purchase perfect information from the market experts at the cost of $200,000 then going as per P2 would be the better option.

So if the company for its own reason decided not to commission the expert market research, its best bet to the contribution on the expected returns would be the plan P2 which has the highest expected returns’ contribution which stands at $ 1.0336 million. This is almost half of the total