Critical Reasoning
Verbal Ability

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Q.

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 payfor 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

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Solution:
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.

The correct answer is E.


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