Tough Assumption question

varun007 · Posted: Sat Aug 30, 2008 8:17 am Post subject: Tough Assumption question

Company X receives most of its revenues from the sale of gasoline through a network of gas stations that it owns across the country. The company purchases ready-for-sale gasoline from several oil refineries at wholesale prices and sells it to the final consumer at its gas stations. Over the next quarter, the management of Company X expects that the market price of gasoline will rise by approximately 10 percent. Therefore, the management projects that the next quarter’s revenues from the sale of gasoline will also increase by approximately 10 percent.

The management's projection is based on which of the following assumptions?
1. Consumption of gasoline at the company’s gas stations will not drop in response to higher prices.
2. Company profits will not decline below their current level.

3. Higher gasoline prices will not reduce the company’s revenues from other business lines.
4. The costs of gasoline purchased by the company for subsequent sale at its gas stations will remain relatively constant.

5. The supply of gasoline is likely to decline over the next quarter.

oa is a pls explain in detail

James_83 · Posted: Sun Aug 31, 2008 12:11 am Post subject:

Here look what is the argument :-

Company X purchases gasoline from oil-refineries and the rate of gasoline is expected to rise by 10%.

Conclusion :- Revenues (NOT PROFIT) of Company X will also increase by 10%.

So, simply what they are assuming that the consumption will remain the same though the prices will be increased by 10%.
Moreover, we should not be concerned about the profits as the projection is about the revenues and not the profits.
Hence,

2 ->>is not of our concern.
3 -->>out of scope.
4 ->>does not clear the picture.
5 ->>is against the conclusion.

varun007 · Posted: Sun Aug 31, 2008 12:38 am Post subject:

THANX FOR THE EXPLANATION

NSNguyen · Posted: Sat Sep 06, 2008 9:36 pm Post subject:

FYI
http://www.beatthegmat.com/company-x-and-management-t13525.html