ASSINGNMENT-1

APE(GE)
SEMISTER-VIII
(Date of Submission: 26/02/2016)
PETROLEUM ENGINEERING ECONOMICS

1. A refiner determines that the total cost of producing Q barrels of gasoline per day is
given by:
TQ = 4000 + 2Q
And the revenue (in thousands of dollars) from selling Q barrels of gasoline per day is
TR = 4Q
a. Find the break even point
b. At the break-even point, what are the cost and revenue?
c. Find the break-even point graphically
d. How many barrels of gasoline must be produced and sold in order to earn profit of
$100,000
2. Start your own business with 20 different transactions. Prepare a position statement after every
transaction. Did your firm earn profits or made a loss at the end of all the transactions. Make
small comment on your firms position at the end.

3. The total capital investment for a petrochemical plant is $1 million, and the working
capital is $100,000. If the plant can produce an average of 8000 kg of final product per
day during a 365-day year, what selling price in dollars per kilogram of product would be
necessary to give a turnover ratio of 1.0?

4. The total capital investment for a conventional process plant is $1,500,000; and the plant
produces 3 million kg of product annually. The selling price of the product is $0.82/kg.
Working capital amounts to 15 percent of the total capital investment. The investment is
from company funds, and no interest is charged. Raw-materials costs for the product
are labor utilities and packaging Distribution costs are 5 percent of the total product
cost. Estimate the following:
a. Manufacturing cost per kilogram of product.
b. Total product cost per year.

c. Profit per kilogram of product before taxes.

d. Profit per kilogram of product after taxes (use current rate).
5. A process plant making 2000 tons per year of a product selling for $0.80 per lb has
annual direct production costs of $2 million at 100 percent capacity and other fixed
costs of $700,000. What is the fixed cost per pound at the break-even point? If the selling
price of the product is increased by 10 percent, what is the dollar increase in net profit at
full capacity if the income tax rate is 34 percent of gross earnings?
6. The total capital investment for a proposed chemical plant which will produce
$1,500,000 worth of goods per year is estimated to be $1 million. It will be necessary to
do a considerable amount of research and development work on the project before
the final plant can be constructed, and management wishes to estimate the
permissible research and development costs. It has been decided that the net profits
from the plant should be sufficient to pay off the total capital investment plus all research
and development costs in 7 years. A return after taxes of at least 12 percent of sales must
be obtained, and 34 percent of the research and development cost is tax-free (i.e., incometax rate for the company is 35 percent of the gross earnings and only 65 percent of the
funds spent on R&D must be recovered after taxes are paid). Under these conditions,
what is the total amount the company can afford to pay for research and development?