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

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Manager
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Hotco oil burners, designed to be used in asphalt plants, are so effic  [#permalink]

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Updated on: 13 Dec 2018, 04:50
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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

Originally posted by run4run on 13 May 2010, 11:04.
Last edited by Bunuel on 13 Dec 2018, 04:50, edited 1 time in total.
Renamed the topic and edited the question.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic  [#permalink]

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13 May 2010, 12:19
10
1
is it (E)?

Hotco will get = amount paid for oil in last 2 years - amount paid for oil in next 2 years

now suppose the plant used 100 liters of oil in last 2 years at a price of $2 per liter....which means the plant spent$200 on oil

the price of oil is steadily increasing

now suppose the plane used 70 liters of oils (because the burner is efficient) in next 2 years at a price of $2.30 per liter....which means the plant will spend$161 on oil

Hotco will get = 200 - 161 = $39 for its burner which will be disadvantageous for Hotco because of its plan. ##### General Discussion Intern Joined: 07 Nov 2009 Posts: 43 Location: New York, NY Schools: Columbia, NYU, Wharton, UCLA, Berkeley WE 1: 2 Yrs mgmt consulting WE 2: 2 yrs m&a Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags 14 May 2010, 08:51 3 1 I think it's E. As I read thru them, nothing really rang a bell until I got to E. Cuz if the price of oil goes up, then the cost savings for using this new burner becomes less and less. If the price goes up really high, then cost savings go to zero or even that there's negative cost savings (or that it ends up being more expensive than before). His payment is the cost savings, so if that goes to zero that's disadvantageous to the dude. Anybody disagree with E? Intern Joined: 25 Dec 2006 Posts: 7 Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags 03 Nov 2010, 20:01 3 In my opinion D will end up being profitable for Hotco Less Demand- Less Oil used-Greater Savings ( Assuming Oil prices stay the same)--More money for HOTCO... E is Right.. Manager Status: Can't give up Joined: 20 Dec 2009 Posts: 227 Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags 04 Nov 2010, 12:20 1 Gosh this was a hard one > 3 minutes E - using the key word "oil" also if the price of the oil goes up there won't be much savings Hotco would get back by selling it. Manager Status: struggling with GMAT Joined: 06 Dec 2012 Posts: 123 Location: Bangladesh Concentration: Accounting GMAT Date: 04-06-2013 GPA: 3.65 Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags 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 Intern Joined: 19 Apr 2011 Posts: 1 Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags 05 May 2013, 08:17 1 1 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. Intern Joined: 16 Jun 2012 Posts: 8 Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags Updated on: 06 May 2013, 12:39 2 1 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. Originally posted by myselfhari on 06 May 2013, 02:02. Last edited by myselfhari on 06 May 2013, 12:39, edited 1 time in total. Senior Manager Joined: 26 Jul 2010 Posts: 311 Location: European union Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags 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... Manager Joined: 22 Apr 2013 Posts: 80 Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags 06 May 2013, 19:40 2 1 Ivan91 wrote: How the hell to answer this when I have no idea what oil burner is and what the whole passage talks about... Hotco oil burners, designed to be used inasphalt 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 actuallypaid 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. Hotco oil burners--the product being sold Asphalt Plants--The industry the product being sold is aimed at. Asphalt being the product this industry produces. Cost savings of price paid for oil, used by the oil burner, will be the cost of the Hotco oil burner. Range is the two years prior to installation of the Hotco Oil Burner and the two years following the installation of the Hotco Oil Burner. Thus the price of oil is critical to the cost savings and the price paid for the Hotco Oil Burner. _________________ I do not beg for kudos. Intern Joined: 02 Jan 2014 Posts: 10 Schools: INSEAD Jan '15 Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#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) Director Joined: 10 Mar 2013 Posts: 503 Location: Germany Concentration: Finance, Entrepreneurship GMAT 1: 580 Q46 V24 GPA: 3.88 WE: Information Technology (Consulting) Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags 20 Feb 2015, 05:56 2 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: 01 Jul 2015 Posts: 35 WE: Investment Banking (Investment Banking) Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags 06 Jan 2016, 11:31 1 Wanted to explain choice D for those not familiar. General business equation = Revenue - Costs = Profits. The premise states that the overall amount to be paid is the difference in costs, that is, difference between costs prior to the installation and costs after the installation. An increase in demand for asphalt will increase revenue and has nothing to do with costs. Intern Joined: 07 Aug 2015 Posts: 7 Concentration: Marketing, General Management Re: Hotco oil burners, designed to be used in asphalt plants, are so effic [#permalink] ### Show Tags 04 Apr 2016, 12:55 1 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. The gap of saving will decrease if the price of oil increases. For example, let suppose the initial cost of oil expenditure was$100 and because of great efficiency of the new burner the cost has reduced to $70, so the saving would be$30. But what if the crude oil price rises to twice? then there will be no saving.

hope you liked the clarification. #Kudos
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic  [#permalink]

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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, are so effic  [#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, are so effic  [#permalink]

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08 Dec 2016, 03:03
Let:
$$X$$: Total amount the plant paid for oil using the older (former) burner for last two years (known).

$$Y$$: Total amount the plant will pay for oil using HOTCO burner for next two years (estimated).

HOTCO estimated S.P. = $$X$$ – Estimated($$Y$$)

As oil price will increase the value of actual Y will also increase, so that will be a loss for HOTCO.

Please note that Option (c) Very poor efficiency in the Clifton Asphalt plant’s old burner; is not going to affect the outcome. We already know the value of $$X$$.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic  [#permalink]

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06 Sep 2017, 16:08
i feel so stupid...read the q-stem incorrectly. there's a lot to digest here.

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.

TRANSLATED: HOTCO'S REVENUE = HOW MUCH CLIFTON PAID FOR OIL USING OLD BURNER (LAST 2 YEARS) - HOW MUCH CLIFTON WILL PAY FOR OIL (NEXT 2 YEARS)
> What would be ADVANTAGEOUS for Hotco? <-- Strengthen: If Clifton paid a LOT more for oil using the old burner AND/OR if Clifton is saving a LOT using the new Hotco oil burner
* ON THE OTHER HAND, WE WANT TO WEAKEN.

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
- out of scope

B) The Clifton Asphalt plant’s need for more than one new burner
- out of scope too

C) Very poor efficiency in the Clifton Asphalt plant’s old burner
- OPPOSITE! Poor efficiency in old burner means higher revenue for Hotco! I initially went for this when I misread the question as "advantage" instead of "disadvantage"

D) A decrease in the demand for asphalt
- out of scope. concerned with pricing of oil, not asphalt

E) A steady increase in the price of oil beginning soon after the new burner is installed
- Although the new burner is more efficient, if the price of oil goes up theoretically, this could diminish the savings. The understood "savings" you get from using Hotco relies on the assumption that you are paying the same (or less) for oil!

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

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03 Sep 2018, 07:44
1
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.

Option(E) is correct

Option A : The burner is already installed, so a competitor is not a problem.

Option B : The plant's need for multiple burners should bean opportunity for Hotco, nota disadvantage.

Option C : If the old burner was very inefficient, the new burner should save a great deal of money that would ultimately go to Hotco.

Option D : If demand decreases, less oilwould need to be purchased, and Hotco would get more money.

Option E : Correct. This statement properly identifies a factor that would constitute a disadvantage for the plan since the payment for the burner is based on savings in oil purchases, any increases in the price of oil will decrease savings and thus decrease payments to Hotco.
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Re: Hotco oil burners, designed to be used in asphalt plants, are so effic  [#permalink]

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13 Dec 2018, 04:42
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.

I see many guys not understanding the passage. I will paraphrase for you guys.

The passage says:
The hotco company is willing to sell its oil burners for a cost = cost of oil estimated for using the less efficient oil burner - cost of oil estimated on the use of hotco burner.
Now that is the difference in savings in the oil cost. Since, hotco believes its burners are efficient and it would save oil.
But, the problem is cost of oil could rise over the two years and would result in less profits for hatco.
Re: Hotco oil burners, designed to be used in asphalt plants, are so effic &nbs [#permalink] 13 Dec 2018, 04:42
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