Q. To avoid a hostile takeover attempt, the board of directors of Wellco, Inc., a provider of life and health insurance, planned to take out large loans and use them to purchase a publishing company, a chocolate factory, and a nationwide chain of movie theaters. The directors anticipated that these purchase initially would plunge the corporation deep into debt, rendering it unattractive to those who wanted to take it over, but that steadily rising insurance rates would allow the company to pay off the debt within five years. Meanwhile, revenues from the three new businesses would enable the corporation as a whole to continue to meet its increased operating expenses. Ultimately, according o the directors’ plan, the diversification would strengthen the corporation by varying the sources and schedules of its annual revenues.
Which of the following, assuming that all are equally possible, would most enhance the chances of the plan’s success?
(A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide.
(B) New government regulations require a 30 percent across-the-board rate rollback of all insurance companies, to begin immediately and to be completed within a five-year period.
(C) Congress enacts a statute, effective after six months, making it illegal for any parent not to carry health insurance coverage for his or her child.
(D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence.
(E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level.
Option C is the answer. It supports the conclusion directly. The Congress's statute will ensure an increase in insure coverage rates thereby boosting the revenue and profit of the insurance division of Wellco Inc., which can be used pay off the company's debt.
Option E does not support the company's plan directly and may not even support it at all. A fall in paper prices would certainly decrease the expenses of Wellco's publishing division, though it may not necessarily result in higher profits. If the publishing industry as a whole decreases prices, Wellco may have to follow the trend. One cannot even say with certainty that decreased prices for Wellco's publishing products will result in higher sales for the company.
Companies considering new cost-cutting manufacturing processes often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.
Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?
(A) The costs of materials required by the new process might not be known with certainty.
(B) In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
(C) Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
(D) Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
(E) The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.
The answer is A. It directly attacks the companies' method of evaluating a new manufacturing process. If the costs of materials required by the new process may not be known with certainty, the company will not be able to compute the results (profits) of the new process accurately.
A program instituted in a particular state allows parents to prepay their children’s future college tuition at current rates. The program then pays the tuition annually for the child at any of the state’s public colleges in which the child enrolls. Parents should participate in the program as a means of decreasing the cost for their children’s college education.
Which of the following, if true, is the most appropriate reason for parents not to participate in the program?
(A) The parents are unsure about which pubic college in the state the child will attend.
(B) The amount of money accumulated by putting the prepayment funds in an interest-bearing account today will be greater than the total cost of tuition for any of the pubic colleges when the child enrolls.
(C) The annual cost of tuition at the state’s pubic colleges is expected to increase at a faster rate than the annual increase in the cost of living.
(D) Some of the state’s public colleges are contemplating large increases in tuition next year.
(E) The prepayment plan would not cover the cost of room and board at any of the state’s public colleges.
Why wouldn't the answer be option 'C'?
One does not know the relevance of the increase in cost of living here. It cannot be said with certainty that this point weakens the argument as there is no clear link it has with the evidence or the conclusion provided due to the ‘cost of living variable’. It does not promote or construct a robust alternative possibility either.
Slight mistake, Richa. Your previous question is of the inference type. I've placed it under the 'Inferences' topic in the Critical Reasoning section of the forum.
Q. A recent spate of launching and operating mishaps with television satellites led to a corresponding surge in claims against companies underwriting satellite insurance. As a result, insurance premiums shot up, making satellites more expensive to launch and operate. This, in turn, has added to the pressure to squeeze more performance out of currently operating satellites.
Which of the following, if true, taken together with the information above, best supports the conclusion that the cost of television satellites will continue to increase?
(A) Since the risk to insurers of satellites is spread over relatively few units, insurance premiums are necessarily very high.
(B) When satellites reach orbit and then fail, the causes of failure are generally impossible to pinpoint with confidence.
(C) The greater the performance demands placed on satellites, the more frequently those satellites break down.
(D) Most satellites are produced in such small numbers that no economies of scale can be realized.
(E) Since many satellites are built by unwieldy international consortia, inefficiencies are inevitable.
The main premise for the conclusion that the cost of television satellites will continue to increase is that there is added pressure to squeeze more performance out of currently operating satellites.
The assumption for this argument is that attempts to squeeze more performance out of current satellites will lead to more operational mishaps of TV satellites (derived by also using the subsidiary premises).
This assumption is reflected in option C- The greater the performance demands placed on satellites, the more frequently those satellites break down.
