CEO: Over the past several years, we have more than doubled our revenues but profits have steadily declined because an increasing number of customers have failed to pay their balances. In order to compensate for these higher default rates, we will increase the interest charged on outstanding balances from an annual percentage rate (APR) of 9.5% to an APR of 12%. This increase will be sufficient to compensate for the current rate of defaults and allow us to increase our profits.
Which of the following statements, if true, would most seriously undermine a plan to increase interest rates in order to spur profitable growth?
(A) Many other companies have experienced a similar trend in their default rates.
(B) The company's operating expenses are above the industry average and can be substantially reduced, thus increasing margins.
(C) The increase in default rates was due to a rise in unemployment, but unemployment rates are expected to drop in the coming months.
(D) The proposed increase in the APR will, alone, more than double the company's profit margins.
(E) An increase in the APR charged on credit card balances often results in higher rates of default.
OA E
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CEO: Over the past several years, we have more than doubled
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Premise: The company has more than doubled its revenue but profits have steadily declined because an increasing number of customers have failed to pay their balances.
Conclusion The company plans to increase the interest charged on outstanding balances from an annual percentage rate of 9.5% to 12% in order to compensate for the higher default rates.
Option A - Incorrect
This claim is not relevant to the argument as we can't know if other companies experienced a similar trend in their default rate.
Option B - Incorrect
The company's operating expenses have no relation to the passage. As a result of this, this claim is false.
Option C - Incorrect
It wasn't stated in the passage if the increase in default rates was due to a rise in unemployment. So, we are not concerned about this.
Option D - Incorrect
We can't know if the interest charged on outstanding balances will, more than double the company's profit margin because the actual profit of the company wasn't stated.
Option E - Correct
This claim gives a legitimate example that literally weakens the argument.
Conclusion The company plans to increase the interest charged on outstanding balances from an annual percentage rate of 9.5% to 12% in order to compensate for the higher default rates.
Option A - Incorrect
This claim is not relevant to the argument as we can't know if other companies experienced a similar trend in their default rate.
Option B - Incorrect
The company's operating expenses have no relation to the passage. As a result of this, this claim is false.
Option C - Incorrect
It wasn't stated in the passage if the increase in default rates was due to a rise in unemployment. So, we are not concerned about this.
Option D - Incorrect
We can't know if the interest charged on outstanding balances will, more than double the company's profit margin because the actual profit of the company wasn't stated.
Option E - Correct
This claim gives a legitimate example that literally weakens the argument.
