Question

Use the information for the question(s) below.

Tapis Outback Crude Oil (TOC)	$71.75/Bbl
Western Australian Intermediate Crude Oil (WAI)	$73.06/Bbl

As an oil refiner, you are able to produce $76 worth of unleaded petrol from one barrel of Tapis Outback Crude (TOC) oil. Because of its lower sulfur content, you can produce $77 worth of unleaded petrol from one barrel of Western Australian Intermediate (WAI) crude.


Assuming you currently have 10,000 Bbls of WAI crude, the total benefits to you if you were to sell the 10,000 Bbls of WAI crude and use the proceeds to purchase and refine TOC crude is closest to:

Select one:

A. $730,600

B. $770,000

C. $771,400

D. $773,908

Answer 1

Solution:-

To Produce of one barrel of Tapis Outback crude its worth is $76 of unleaded petrol.

To Produce of one barrel of Western Australian Intermediate (WAI) crude its worth is $77 of unleaded petrol.

Currently 10,000 Bbls of WAI Crude.

To Calculate the total Benefit  if you were to sell the 10,000 Bbls of WAI crude and use the proceeds to purchase and refine TOC crude is closest to-

Total Benefit = Currently Bbls * worth of unleaded petrol

Total Benefit = 10,000 Bbls * $77 of petrol/Bbls

Total Benefit = $7,70,000

Hence, the Correct Answer is point B i.e. $7,70,000.

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