bill collection (pls explain)

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max37274: Senior | Next Rank: 100 Posts; Posts: 93; Joined: Thu Oct 22, 2009 4:03 amFollowed by: 1 member; Thanked: 2 times

by max37274 » Thu Feb 18, 2010 8:33 am

A company with long-outstanding bills owed by its customers can assign those bills to collection agency that pays the company a fraction of their amount and then tries to collect payment from the customers. Since these agencies pay companies only 15 percent of the total amount of the outstanding bills, a company interested in reducing losses from long-outstanding bills would be well advised to pursue its debtors on its own.

The argument depends on the assumption that

(A) a company that prusues its debtors on its own typically coliects more than 15 percent of the total amount of the long-outstanding bills that it is owed
(B) the cost to a company of pursuing its debtors on its own for payment of long-outstanding bills does not exceed 15 percent of the total amount of those bills
(C) collection agencies that are assigned bills for collection by companies are unsuccessful in collecting, on average, only 15 percent of the total amount of those bills.
(D) at least 15 percent of the coustomers that owe money to companies eventually pay their bills whether or not those bills are assigned to a collection agency
(E) unless most of the customers of a company pay their bills, that company in the long run will not be profitable.

Source: Beat The GMAT — Critical Reasoning | Thu Feb 18, 2010 8:33 am

max37274: Senior | Next Rank: 100 Posts; Posts: 93; Joined: Thu Oct 22, 2009 4:03 amFollowed by: 1 member; Thanked: 2 times

by max37274 » Thu Feb 18, 2010 10:30 am

MODERATORS PLS HELP WHY A IS RIGHT AND B IS WRONG IN A ALSO there exists a possibility that costs are high and company incurs losses

Osirus@VeritasPrep: GMAT Instructor; Posts: 1578; Joined: Thu May 28, 2009 8:02 amFollowed by: 34 members; Thanked: 128 times; GMAT Score:760

by Osirus@VeritasPrep » Thu Feb 18, 2010 10:36 am

max37274 wrote:MODERATORS PLS HELP WHY A IS RIGHT AND B IS WRONG IN A ALSO there exists a possibility that costs are high and company incurs losses

B is wrong because if the total amount it would cost the company to pursue the debt on its own is not a neglegible cost, then the entire argument is wrong. Plus even if the cost is 15% it does not mean that the company could not obtain 50% of the debt and still net 35% more than they would have if they sold the debt to a collection agency.

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komal: Legendary Member; Posts: 777; Joined: Fri Jan 01, 2010 4:02 amFollowed by: 47 members; Location: Mumbai, India; Thanked: 117 times

by komal » Thu Feb 18, 2010 11:07 am

max37274 wrote:A company with long-outstanding bills owed by its customers can assign those bills to collection agency that pays the company a fraction of their amount and then tries to collect payment from the customers. Since these agencies pay companies only 15 percent of the total amount of the outstanding bills, a company interested in reducing losses from long-outstanding bills would be well advised to pursue its debtors on its own.

The argument depends on the assumption that

Assumption negation technique works very well for such question types.

(A) a company that prusues its debtors on its own typically coliects more than 15 percent of the total amount of the long-outstanding bills that it is owed
Correct : If we negate this answer choice (company does not collect more than 15% of total amt) the argument falls apart.

(B) the cost to a company of pursuing its debtors on its own for payment of long-outstanding bills does not exceed 15 percent of the total amount of those bills
Incorrect : Agencies pay only 15% to the companies. This indirectly means that it is costing the company 85% of the total amount of those bills. Thus if we negate (B) it only strengthens the argument.

(C) collection agencies that are assigned bills for collection by companies are unsuccessful in collecting, on average, only 15 percent of the total amount of those bills.
Incorrect : The assumption about the amount collected by agencies is not an issue here. The issue is total amt. collected by COMPANIES.

(D) at least 15 percent of the coustomers that owe money to companies eventually pay their bills whether or not those bills are assigned to a collection agency
Incorrect : If we logically negate this answer choice the argument does not weaken in any way. Hence Eliminated.

(E) unless most of the customers of a company pay their bills, that company in the long run will not be profitable.
Incorrect : Issue is not about 'long run profit'. It is about 'long o/s bills'. This is clearly a scope shift. Eliminated.

https://www.e-gmat.com/

gmatmachoman: Legendary Member; Posts: 2326; Joined: Mon Jul 28, 2008 3:54 amFollowed by: 2 members; Thanked: 173 times; GMAT Score:710

by gmatmachoman » Thu Feb 18, 2010 11:27 am

@Max,

I suggest you to read thru the fundamentals of "Kaplan Denial Test/Negate test". This is a handy wonderful technique that could be used fo Assumption/ weaken based questions.

As Komal suggested, when we use denail test(Negate test), the assumptin on which the conclusion is based should certainly fall apart.

Assume "the assumption" to be concrete of a "building".So when u break down the concrete, the building has to fall apart.

If on any count even after theapplication of Denial Test, the conclusion is NOT shaky, then the selected option is NOT the assumption.

Using POE toanswer Assumption/Strengthe/Weaken based question is NOT a great idea.
As" Assumption " is a building block to the conclusion of the argument, use Denial test to check whethet the argument gets shaky or not!!

In additon, as always u can use Powerscore CR for building ur "building blocks".Practice is of less use unlsee u build it using "Stronger theoritical stuff"

R&D on GMAT algorithm:

https://www.beatthegmat.com/r-d-on-gmat- ... tml#305739

okigbo: Master | Next Rank: 500 Posts; Posts: 177; Joined: Sun Aug 02, 2009 9:39 pm; Thanked: 6 times

by okigbo » Thu Feb 18, 2010 11:27 am

great question and answers..

I fell for B cuz it sounded like a 'gmat type' assumption answer.. very clearly A here

max, your CR's are very tricky and great practice...what's the source??

max37274: Senior | Next Rank: 100 Posts; Posts: 93; Joined: Thu Oct 22, 2009 4:03 amFollowed by: 1 member; Thanked: 2 times

by max37274 » Thu Feb 18, 2010 12:40 pm

Thanks Sirous, Komal and Machoman for excellent tips.

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