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Wappo, a company that manufactures turbine blades for hydroelectric

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Re: Wappo, a company that manufactures turbine blades for hydroelectric [#permalink]
Bunuel wrote:
­Wappo, a company that manufactures turbine blades for hydroelectric dams, has designed a new model of blade with a superior hydrodynamic form that will save energy and hence cost in implementation. Wappo is willing to sell these blades to a particular hydroelectric dam at no initial cost. The only payment will be the difference between, first, a percentage of the dam's improved profits, as measured by the percentage improvement of the hydroelectric dam efficiency times the value of energy sold by the plant over an 18-month period, and, second, the additional cost of installation and maintenance of the new turbines. On installation, the dam will make an estimated payment, which will be adjusted after eighteen months to equal the proper amount.

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

A. Another manufacturer's introduction to the market of a similarly efﬁcient turbine blade

B. The dam's need for a large number of turbine blades

C. Energy efficiency of the dam's current turbines somewhat below the industry average

D. Levels of demand for hydroelectric power that were stagnant but above predicted levels

E. Uncharacteristic weather conditions decreasing the amount of energy that can be harvested through hydroelectric means at the dam's location

­
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Official Explanation

Reading the question: first, we grasp the fact that there is a unique payment structure dependent on two variables. Then, we try to understand what the variables are. And we note the fact there's an estimated payment. A "disadvantage" for Wappo in this rather creative payment scheme would come if it somehow got paid very little. It does the installation at no cost and things don't go according to plan. Obviously, if the product is poor that would be a problem. Slightly more subtly, Wappo isn't getting a payment past 18 months, is it? Other than new turbines. So things would go very badly if the dam didn't sell much for 18 months, then sold a lot and loved Wappo, but didn't install any more. We've got a sort of prediction to use as our filter.

Applying the filter: choices (A) and (B) don't impact the variables that are inputs to Wappo's pay. And choice (C) will increase Wappo's payout. (D) is basically our prediction, but it gets twisted at the end with "above predicted levels." If demand is at or above predicted levels, Wappo revenue should be at or above predicted levels. Choice (E) is in the spirit of our prediction, because unusual weather conditions are impairing revenue. And "uncharacteristic" indicates the opposite of what we have in (D); in (E), the weather predictions have not been planned for.

Logical proof: we can confirm (E) with the negation test. What if weather conditions dramatically increased the amount of energy that could be harvested? That would dramatically increase the "value of energy sold by the plant over an 18-month period" and create an advantage to the plan. Just as the negated (E) is an advantage, the non-negated (E) is a disadvantage.

The correct answer is (E).
Re: Wappo, a company that manufactures turbine blades for hydroelectric [#permalink]
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