BREAKING: Target Test Prep releases Brand New 2026 On Demand GMAT prep course

Redeem

A multinational electricity conglomerate

This topic has expert replies
Post new topic Post Reply
Previous Topic Next Topic
Moderator
Posts: 772
Joined: Wed Aug 30, 2017 6:29 pm
Followed by:6 members

A multinational electricity conglomerate

by BTGmoderatorRO » Sun Feb 25, 2018 7:10 am
A multinational electricity conglomerate, in its 2004 annual report, disclosed that four of its five divisions made a profit, an improvement over last year when only the European division had positive net income. The Chief Executive Officer claimed his new strategy, which involved exploiting previously untapped rural markets, is completely responsible for the improved financial performance.

Which of the following, if true, would most seriously weaken the CEO's explanation of the conglomerate's improved financial performance?

A.The electricity conglomerate opened over thirty-three new profitable offices in rural markets last year.
B.The company's urban markets did not experience substantial changes in terms of either revenues or costs.
C.The accounting department applied a new accounting regulation that includes as revenue transactions that previously would have not have been recorded until the following year.
D.There will be fewer layoffs at the unprofitable divisions because a new union contract allows the company to reduce wages by ten percent to alleviate financial constraints.
E.Five years ago, the company's five divisions all met or exceeded the average net income of the one hundred largest electricity companies.
OA is C
I have a problem understanding the OA here. An Expert help is needed please
Top
Source: — Critical Reasoning |
Legendary Member
Posts: 2214
Joined: Fri Mar 02, 2018 2:22 pm
Followed by:5 members

RE:

by deloitte247 » Fri Aug 17, 2018 6:05 am
Option A - INCORRECT.
The electricity conglomerate opened over thirty-three new profitable offices in rural markets last year so they were able to generate some incomes from them this year which improved their positive net income of the divisions this year.

Option B - INCORRECT.
The company's urban markets did not experience substantial changes in terms of either revenues or costs that is why the divisions were able to boost their profits and improve their financial performance this year.

Option C - CORRECT.
This option has mostly flawed the CEO's explanation of the improved financial performance of the conglomerate. The accounting department may have applied a new accounting regulation that includes, revenue transactions that were previously would have not have been recorded not until the following year to be accumulated with the same year. Therefore the income made in each year now remain with that year no transfer of fund to another year. But however, the Chief Executive Officer claim of his new strategy which involved exploiting previously untapped rural markets is completely responsible for the improved financial performance.

Option D - INCORRECT.
The claim in this option would have also increase the chances of getting an improved financial performance. If there is fewer layoffs at the unprofitable divisions due to a new union contract that allows the company to reduce wages by ten percent this will alleviate financial constraints in the division.

Option E - INCORRECT.
Five years ago, the company's five divisions all met or exceeded the average net income of the one hundred largest electricity companies, but recently there has being a reduction in the profit margin from each division except for European division who had positive net income.
Top
Post new topic Post Reply
• Page 1 of 1