## PDVAL Math

For this exercise, assume:

• You have a \$28 million budget for transport.
• The maximum payload of the Boeing 777 you’re using is 102 tons.
• The distance between Buenos Aires and Caracas is 5086 km.
• The marginal cost (in terms of extra jet-fueled burned) of transporting one ton of cargo over 1000 km. is \$91.
• The fixed cost of flying a 777 Freighter one-way between Caracas and Buenos Aires is \$55,000.
• Your plane always goes back from Venezuela to Argentina empty.

On that basis, calculate how much of the \$28 million transport budget you can stow away in your own personal offshore account.

If you calculated that your 777 would have to do

• 6556 tons / 102 ton maximum payload = 64.3

65 round-trips (rounding up) between Caracas and Buenos Aires, incurring fixed costs of:

• 65 round-trips x 2 legs per trip x \$55,000 per leg = \$7,150,000

and variable costs of:

• \$91 per ton per 1000 km. x 6556 tons x 5.086 thousands of km. = \$3,034,287

for a total cost of \$10,184,287 and, considering you had \$28 million for transport, you deduced this means you can pocket a cool seventeen million eighthundred and fifteen thousand sevenhundred and thirteen bucks…then you’re wrong.

It was a trick question: the milk never actually made it onto the plane in the first place.

You get to pocket the full \$28 million!

(Extra credit if you remembered that you can pocket the \$39 million price of the milk itself, too.)