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Plz explain the following CR

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by Lina » Fri Oct 31, 2008 10:56 am
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

I am particularly looking for reasons to knock off answer choice A. As per the official explanation , it says that Hotco oil burner is already installed, so the presence of a competitor is not a problem...How do I get to know if the burner is already installed?...the argument gives me an impression that the burner is planned to be installed.
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Re: Plz explain the following CR

by codesnooker » Fri Oct 31, 2008 11:20 am
Lina wrote: How do I get to know if the burner is already installed?...the argument gives me an impression that the burner is planned to be installed.
Nice thought but let's look at the option (A) again. (A) states that competitor have introduced the similar efficient burner in the market but it doesn't reveals any information regarding its prices. So it MAY BE or MAY NOT BE greater the Hotco's new burner prices. So chances are only 50%.

Whereas if we look at option (E), if the prices of oil are increased then the price difference between Clifton's previous expenditure on oil (last 2 years) and Clifton's new expenditure on oil (in next 2 years) will be reduced with respect to increase in the oil's price. As (E) states that increase is STEADY hence the expenditure gap will be GREATLY SHORTEN. That means Hotco will get very less price for its new improved burner.

Hence (E) is the right option over here.

Hope this helps... Let me know if need more detail on this...
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by mjjking » Sun Jan 25, 2009 7:18 am
Right answer should be E. In fact, an increase in oil price will make the total cost of oil higher than it would be at current price levels. Hence, the savings of the other company will diminuish and Hotco will receive less money for its machine.
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by samanthaJ79 » Fri May 13, 2016 3:34 am
I also think that right answer is E
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