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OG - RC Passage1 - Q1

This topic has 3 expert replies and 1 member reply
fiza gupta Master | Next Rank: 500 Posts
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OG - RC Passage1 - Q1

Post Mon Oct 17, 2016 11:42 pm
Elapsed Time: 00:00
  • Lap #[LAPCOUNT] ([LAPTIME])
    Findings from several studies on corporate mergers and acquisitions during the 1970s and 1980s raise questions about why firms initiate and consummate such transactions. One study showed, for example, that acquiring firms were on average unable to maintain acquired firms’ pre-merger levels of profitability. A second study concluded that postacquisition gains to most acquiring firms were not adequate to cover the premiums paid to obtain acquired firms. A third demonstrated that, following the announcement of a prospective merger, the stock of the prospective acquiring fi rm tends to increase in value much less than does that of the firm for which it bids. Yet mergers and acquisitions remain common, and bidders continue to assert that their objectives are economic ones.

    Acquisitions may well have the desirable effect of channeling a nation’s resources efficiently from less to more efficient sectors of its economy, but the individual acquisitions executives arranging these deals must see them as advancing either their own or their companies’ private economic interests. It seems that factors having little to do with corporate economic interests explain acquisitions. These factors may include the incentive compensation of executives, lack of monitoring by boards of directors, and managerial error in estimating the value of firms targeted for acquisition. Alternatively, the acquisition acts of bidders may derive from modeling: a manager does what other managers do.

    Q1) It can be inferred from the passage that the author would be most likely to agree with which of the following statements about corporate acquisitions?

    (A) Their known benefits to national economies explain their appeal to individual firms during the 1970s and 1980s.
    (B) Despite their adverse impact on some firms,they are the best way to channel resources from less to more productive sectors of a nation’s economy.
    (C) They are as likely to occur because of poor monitoring by boards of directors as to be caused by incentive compensation for managers.
    (D) They will be less prevalent in the future, since their actual effects will gain wider recognition.
    (E) Factors other than economic benefit to the acquiring fi rm help to explain the frequency with which they occur.

    OA:E

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    Fiza Gupta

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    Post Thu Oct 20, 2016 8:44 pm
    Quite often, the key to getting the right answer on RC has less to do with understanding the passage itself, and more with knowing what makes an answer justifiable v. unjustifiable. The GMAT knows that - despite complex language - most people with decent reading skills will get the gist of most passages. So how do they make the questions difficult?
    - by making them seem familiar, using combinations of words and ideas used in the passage
    - by being mostly right... but with one word off
    - by being plausibly true in real life, but not stated in the passage

    I tried an experiment with this one: I didn't read the passage at all, but tried to guess the right answer based on the language of the answer choices.* And I was right!

    Here's what I identified as "dealbreakers":

    (A) Their known benefits to national economies explain their appeal to individual firms during the 1970s and 1980s.
    Sometimes a simple declarative verb is too strong. They explain? In all cases, fully? If this were a right answer, the GMAT would have been much more likely to say:
    "they can explain"
    "they often explain"
    "they help to explain," etc.
    My rule for RC is THINK LIKE A LAWYER! Answers that are too declarative are a problem, but answers that HEDGE (can be, may, could, might, likely, some, etc) are easier to justify.

    (B) Despite their adverse impact on some firms, they are the best way to channel resources from less to more productive sectors of a nation’s economy.
    Way too EXTREME! Even if the passage stated that they were a good way to channel resources, that's still not enough to justify "best." I don't think I've ever seen the word "best" in a right answer to an RC question.

    (C) They are as likely to occur because of poor monitoring by boards of directors as to be caused by incentive compensation for managers.
    Again, this is all about provability. Even if the passage says "X is likely, and Y is also likely," we can't justify "X is as likely as Y." Answers that make a perfectly equal comparison are usually wrong, because things are rarely perfectly equal in life.

    (D) They will be less prevalent in the future, since their actual effects will gain wider recognition.
    There's an old joke that there are only two things we know for sure are going to happen in the future: death and taxes! Other than that, we can't predict the future. So, any answer choice that makes a definitive statement about the future (it WILL be) verses a qualified one (it is LIKELY to be) is a wrong answer.

    (E) Factors other than economic benefit to the acquiring firm help to explain the frequency with which they occur.
    "Help to explain" fixes the problem that I mentioned with just "explain" in A. This is the only answer choice that uses "hedging" language, and doesn't make any statements that are too strong or too comparative to justify.

    The answer is E.


    *nb: this technique mostly only works with INFERENCE and MAIN IDEA questions. It's less helpful in specific detail questions, where the right answer may be very particular. However, this question is what I call a "mind-reading" question: what would the author agree with? Since we can never read minds with certainty, we want to avoid being definitive!

    _________________


    Ceilidh Erickson
    Manhattan Prep GMAT & GRE instructor
    EdM in Mind, Brain, and Education
    Harvard Graduate School of Education


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    Post Thu Oct 20, 2016 8:52 pm
    For more on spotting "dealbreakers" in RC, here's a tongue-in-cheek article:
    https://www.manhattanprep.com/gmat/blog/2013/05/14/reading-comprehension-is-like-speed-dating/

    _________________


    Ceilidh Erickson
    Manhattan Prep GMAT & GRE instructor
    EdM in Mind, Brain, and Education
    Harvard Graduate School of Education


    Manhattan Prep instructors all have 99th+ percentile scores and expert teaching experience.
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    fiza gupta Master | Next Rank: 500 Posts
    Joined
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    Post Thu Oct 20, 2016 11:16 pm
    Thanku Sir for the great explanation

    _________________
    Fiza Gupta

    Post Fri Oct 21, 2016 7:34 am
    fiza gupta wrote:
    Thanku Sir for the great explanation
    I'm a ma'am, but you're very welcome anyway! Wink

    _________________


    Ceilidh Erickson
    Manhattan Prep GMAT & GRE instructor
    EdM in Mind, Brain, and Education
    Harvard Graduate School of Education


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