A refinery made $1,000,000 last from selling 250,000 barrels for $4 each. In res

Question

A refinery made $1,000,000 last from selling 250,000 barrels for $4 each. In response to refinery prices increasing 3.5% each year, the refinery created a project that will increase production by 5% each year for five years. General inflation is expected to increase 4.7% each year.

a. Calculate cash flor from refinery revenues in nominal dollars for years 1-5.

Refinery revenue(nominal)

year1:

year2:

year3:

year4:

year5:

b. Calculate cash flow from refinery in real dollars through years1-5.

Refinery revenue(real)

year1:

year2:

year3:

year4:

year5:

Explanation / Answer

a Year Production Total Barrels Price per barrel Price Total Revenue 1 250000*1.05 262500.00 4*1.035*1.047 4.33 1137827.25 2 250000*1.05*1.05 275625.00 4.33*1.035*1.047 4.70 1294650.851 3 250000*1.05*1.05*1.05 289406.25 4.70*1.035*1.047 5.09 1473089.017 4 250000*1.05*1.05*1.05*1.05 303876.56 5.09*1.035*1.047 5.52 1676120.826 5 250000*1.05*1.05*1.05*1.05*1.05 319070.39 5.52*1.035*1.047 5.98 1907135.95 b Year Production Total Barrels Price per barrel Price Total Revenue 1 250000*1.05 262500.00 4*1.035 4.14 1086750.00 2 250000*1.05*1.05 275625.00 4.14*1.035 4.28 1181025.56 3 250000*1.05*1.05*1.05 289406.25 4.28*1.035 4.43 1283479.53 4 250000*1.05*1.05*1.05*1.05 303876.56 4.43*1.035 4.59 1394821.38 5 250000*1.05*1.05*1.05*1.05*1.05 319070.39 4.59*1.035 4.75 1515822.13

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