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

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Manager
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Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink]

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16 Apr 2013, 09:20
run4run wrote:
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 not understanding the content of the argument.Need every answer choices explanation
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Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink]

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05 May 2013, 08:17
1
This post was
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Situation: Hotco selling burner to CA plant
Transaction details : CA plant will pay X+Y amount (say). This breakdown can be explained as below:
X = Cost savings of the plant using old burner
Y = Future cost savings using hotco burner. (hotco is very confident about the savings as their burners are really efficient)
Now, the argument concludes with a plan whereby the CA plant will make an estimated payment(unrealised amount) & this amount will be adjusted on the actual cost savings after 2 years. So, Cost savings > estimated payment; the plant will pay hotco, the difference & vice versa.

Best way to attack this is to think about Y component, ie:- savings based on the installation of hotco burner(projected cash savings for 2 yrs). That is the unknown part. We cannot do much on X as we already know the savings using old burner(last 2 yrs)

Now if oil prices shoot up after the new installation, CA plant's savings is directly affected & thereby endangering hotco's plan, which will eventually lead hotco to a loss.
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Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink]

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06 May 2013, 12:35
How the hell to answer this when I have no idea what oil burner is and what the whole passage talks about...
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Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink]

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06 May 2013, 20:56
Thanks, the question is not difficult but if you cannot get the passage you stand no chance Sometimes non native speakers have this problem )
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Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink]

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24 May 2013, 18:33
Ivan91 wrote:
How the hell to answer this when I have no idea what oil burner is and what the whole passage talks about...

Hi Ivan,

I know that it's difficult to understand some of the passages - I find that the best way is to not get caught up in the details.

For example in this case just switch it to something else instead of oil burner:

Hyundai will give you a new car - they will not charge you for the car, but instead, they will ask for the price difference between what you spent on gas using your hummer, say 10,000$(yes those things drink gas) and what you will spend on gas using your hyundai, say 50$. So, if gas prices stay the same, Hyundai will collect about 10k$-5$ from you. However, if gas prices hit the roof... assume a drastic 1000$/L... then your nice cost efficient Hyundai will end up spending a LOT of$. In the end it will come out to 5000$for example. Obviously in this case, Hyundai is collecting less money from you. I know this is an exaggerated example, but I find it helps to put things in more familiar situations. Hope that helps. Mo Intern Joined: 19 Jul 2012 Posts: 22 Location: United States Concentration: Operations, Entrepreneurship Schools: INSEAD '14 WE: Consulting (Manufacturing) Followers: 0 Kudos [?]: 15 [0], given: 8 Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink] ### Show Tags 12 Aug 2013, 23:17 Hi, How will the difference in the prices reduce? If Clifton spend more on oil in the next two years, then the difference in the amount expended on oil purchases will increase. I read the stimulus many times and I clearly see that the amount Hotco Oil burners will earn as a payment is the differences in the purchase prices between the two years. Increase in the price differences = Gain for Hotco... How can it constitute to be a disadvantage to Hotco? I see the increasing gap to be advantageous to Hotco. Regards, Chechaxo myselfhari wrote: mun23 wrote: run4run wrote: 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 not understanding the content of the argument.Need every answer choices explanation I am giving it a try here to explain this: Hotco will run into losses if the diference in the amount paid by Clifton asphalt manufacturing company in the last 2 yrs is close enuf to the cost that the compnay will pay in the nex t2 yrs. ok !! Now lets analyse the answers. A) Another manufacturer’s introduction to the market of a similarly efficient burner - there is no comparision with other manufacturers. irrelevant. INCORRECT B) The Clifton Asphalt plant’s need for more than one new burner. - out of scope. INCORRECT C) Very poor efficiency in the Clifton Asphalt plant’s old burner. - might sound true. but this is a catch. we cannot compare efficiencies of old and new burner.INCORRECT D) A decrease in the demand for asphalt. - we have no clue what demand of asphalt has to do with oil burners. this is verbal section in gmat not a physics exam in a college. INCORRECT. E) A steady increase in the price of oil beginning soon after the new burner is installed- If the price of oil increases, the company will have to pay more for its oil in the coming 2 yrs. so the difference in price will reduce and HETCO will receive less in return. - CORRECT. Intern Status: preparing for the GMAT Joined: 16 Jul 2013 Posts: 40 Concentration: Technology, Entrepreneurship GMAT Date: 10-15-2013 GPA: 3.53 Followers: 0 Kudos [?]: 8 [0], given: 5 Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink] ### Show Tags 04 Nov 2013, 22:42 Ivan91 wrote: How the hell to answer this when I have no idea what oil burner is and what the whole passage talks about... you do not really need to know every single term that appear in the argument. All you need to correctly solve 90 percent of CR question is the conclusion. in this question, the whole argument talks about cost saving, so in order to weaken the argument, the answer choice must attack the argument in that area. and answer choice E is the only one that does that. _________________ لا الله الا الله, محمد رسول الله You never fail until you stop trying ,,, Intern Joined: 02 Jan 2014 Posts: 12 Schools: INSEAD Jan '15 Followers: 0 Kudos [?]: 16 [0], given: 15 Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink] ### Show Tags 02 Jun 2014, 14:39 Which of the following, if it occurred, would constitute a disadvantage for Hotco of the plan described above? Summary: Hotco pricing plan is Price of oil * oil used (In older plants) - Price of oil * oil used (in Hotco's plants) A) Another manufacturer’s introduction to the market of a similarly efficient burner Effect on Hotco business = yes Effect on Hotco plans to profit from its efficient plants = No B) The Clifton Asphalt plant’s need for more than one new burner If the extra burner replaces another old plant = more money for Hotco If the extra burner replaces no another plant = more money for Hotco C) Very poor efficiency in the Clifton Asphalt plant’s old burner As per summary equation above, this makes more money for Hotco (Greater previous cost) D) A decrease in the demand for asphalt As per summary equation above, this makes more money for Hotco (Lower current cost) E) A steady increase in the price of oil beginning soon after the new burner is installed As per summary equation above, this could make the equation become negative, i.e. Hotco lose money in this pricing plan. This is the only answer that shows disadvantage of the plan. Answer is therefore (E) Current Student Joined: 20 Jan 2014 Posts: 186 Location: India Concentration: Technology, Marketing Followers: 1 Kudos [?]: 54 [0], given: 120 Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink] ### Show Tags 24 Sep 2014, 08:12 E is clear winner indeed. It weakens the argument _________________ Consider +1 Kudos Please Director Joined: 10 Mar 2013 Posts: 608 Location: Germany Concentration: Finance, Entrepreneurship GMAT 1: 580 Q46 V24 GPA: 3.88 WE: Information Technology (Consulting) Followers: 13 Kudos [?]: 247 [0], given: 200 Hotco oil burners, designed to be used in asphalt plants, [#permalink] ### Show Tags 20 Feb 2015, 05:56 Got traped by D, as I've only 40 sec... One should not rush such questions. It's actually not a very difficult one. So, Hotco are more efficient than standard Burners. But the clue is here that Hotco and Standard Burner BOTH use Oil. I've rushed this one and thought that Hotco uses alternative fuel.... A) Another manufacturer’s introduction to the market of a similarly efficient burner - irrelevant B) The Clifton Asphalt plant’s need for more than one new burner - strengthens... C) Very poor efficiency in the Clifton Asphalt plant’s old burner - strengthens.... So, the last two are interesting: D) A decrease in the demand for asphalt - [I've found a very good explanation wha not (D) from EGMAT] So, if the demand for asphalt decreases, the amount of oil used by Clifton to manufacture asphalt would likely decrease. If the amount of oil decreases, Clifton’s cost savings on oil would be more than they had been for the previous two years. In this case, it would be an advantage for Hotco, not a disadvantage. E) A steady increase in the price of oil beginning soon after the new burner is installed -> CORRECT. this one has been explained by others, so I would not restate them _________________ When you’re up, your friends know who you are. When you’re down, you know who your friends are. Share some Kudos, if my posts help you. Thank you ! 800Score ONLY QUANT CAT1 51, CAT2 50, CAT3 50 GMAT PREP 670 MGMAT CAT 630 KAPLAN CAT 660 Intern Joined: 08 Nov 2015 Posts: 9 GMAT 1: 710 Q49 V38 Followers: 0 Kudos [?]: 2 [0], given: 2 Hotco oil burners, designed to be used in asphalt plants, [#permalink] ### Show Tags 19 Nov 2015, 20:58 Maybe I'm reading into this too much, but the question states that there "will be [an adjustment] after two years to equal the actual cost savings." The only thing that will fluctuate is the price of oil. Now if oil increases, that's to Hotco's advantage -- given that they retain savings (a proportion), they're payment should increase because the cost of the input increases. E would be the obvious answer without the adjusted payment bit added in so I'm a bit confused. Director Joined: 04 Jun 2016 Posts: 656 GMAT 1: 750 Q49 V43 Followers: 45 Kudos [?]: 176 [0], given: 36 Hotco oil burners, designed to be used in asphalt plants, [#permalink] ### Show Tags 15 Jul 2016, 04:15 A clear winner by miles is Option E Argument say Clifton Ashphalt currently uses old burner; Old burner uses 100 gallons of oil. One gallon of oil is 1$ . So Clifton Asphalt currently spends 100$for oil. Hotco will install its Burner:- Hotco burner uses only 20 gallons of oil. If the price of oil stays same 1$ per gallon, then IDEALLY Clifton Asphalt will spend only 20$on oil and the difference of 100$-20$=80$ will come to Hotco Burner as per the contract.

But IF after installing HOTCO Burner, the price of oil increases to 6$a gallon then Clifton Asphalt will spend 6$*20 (Hotco burner oil consumption)=120\$
Now the difference is old -new = 100-120 =-20

SO now rather then getting money from Clifton Asphalt , Hotco Burners will have to pay money to Clifton Asphalt.. Because the contract says so.
THEREFORE RISING OIL PRICES ARE DANGEROUS & VERY DISADVANTAGEOUS FOR HOTCO BURNERS.

And what option tells us that :-

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

run4run wrote:
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

For some reason I can't understand this. Any help will be most appreciated.

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Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink]

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01 Aug 2016, 08:07
run4run wrote:
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

My analysis:

(Premise 1)Hotco sells its oil burner to Clifton for the following payment: (cost of using current oil burner in last 2 years) - (cost of using Hotco oil burner in the following 2 years)
(Premise 2) Calculation of the payment will me made on installation and this will be adjusted in 2 years.

(Pre thinking) In order to weaken the argument we need to think that in the next 2 years the cost of using the Hotco oil burner will be more expensive than using the former oil burner during the last 2 years.
- A possible weakener could be that in the last 2 years Clifton had less costs because it produced less asphalt.
- Another possible weakener could be that Hotco oil burner is not that efficient and Clifton ends up having more costs than before.

A) Another manufacturer’s introduction to the market of a similarly efficient burner
It doesn't matter if there is another player in the market of efficient burners because Hotco already made the deal with Clifton.
B) The Clifton Asphalt plant’s need for more than one new burner
This is out of scope because is not talking about the impact in costs, which is the reasoning we are trying to weak.
C) Very poor efficiency in the Clifton Asphalt plant’s old burner
This is fact strengthens the argument because says that the former burner was not efficient (more costs).
D) A decrease in the demand for asphalt
A decrease in the demand for asphalt would imply lower prices of oils and this would strengthen the argument because a lower price of the input would mean lower costs.
E) A steady increase in the price of oil beginning soon after the new burner is installed
This is the correct answer because an increase in the price of oil will impact in higher costs for the Hotco oil burner for the following 2 years.
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Re: Hotco oil burners, designed to be used in asphalt plants, [#permalink]

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02 Aug 2016, 05:12
run4run wrote:
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

For some reason I can't understand this. Any help will be most appreciated.

As per the given description, the Asphalt will pay to Hotco industries the cost saving that the plant will have for the quantity of oil it will for new Hotco burnes and the quantity of oil had used for old burner in the last two years. Now if the price of oil would steadily increase it the cost saving between the two burner will decerease and hence hotco's plan will fail.
Re: Hotco oil burners, designed to be used in asphalt plants,   [#permalink] 02 Aug 2016, 05:12

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