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Hotco oil burners, designed to be used in asphalt plants, ar

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Hotco oil burners, designed to be used in asphalt plants, ar

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Hotco oil burners, designed to be used in asphalt plants, are so efficient that Hotco will sell one to the Clifton Asphalt plant for no payment other than the cost savings between the total amount the asphalt plant actually paid for oil using its former burner during the last two years and the total amount it will pay for oil using the Hotco burner during the next two years. On installation, the plant will make an estimated payment, which will be adjusted after two years to equal the actual cost savings.

Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above?


A) Another manufacturer’s introduction to the market of a similarly efficient burner

B) The Clifton Asphalt plant’s need for more than one new burner

C) Very poor efficiency in the Clifton Asphalt plant’s old burner

D) A decrease in the demand for asphalt

E) A steady increase in the price of oil beginning soon after the new burner is installed

OA E

Source: Official Guide

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OPTION A - INCORRECT
Another Manufacturer's introduction to the market of a similarly efficient burner, might cause a general disadvantage to the market at large. However, it won't affect the Hotco's plan with the Clifton Asphalt plant because their method of payment may not be the same

OPTION B - INCORRECT
This cannot constitute a disadvantage to the plan because another burner can be easily provided by the Hotcos

OPTION C - INCORRECT
If true, then this will reinforce the need to get a new burner which is the Hotco oil burner

OPTION D - INCORRECT
A decrease in the demand for Asphalt doesn't mean that the Clifton asphalt plant won't need an efficient burner to keep going.

OPTION E - CORRECT
Because the mode of payment between these two entities involve the price of oil, so, if there is a steady increase in the price of oil beginning soon after the new burner is installed, then it will be a disadvantage to the Hotco's plan

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