Grainco

irock wrote:In the United States profits from sales of Grainco’s biggest selling product, cornflakes, have dropped by 30 percent over the last 3 years. During this same time the value of a share of Grainco stock rose by over 20 percent. This is puzzling because the value of a stock usually decreases when a company’s sales decrease.
Which of the following, if true during the last 3 years, most helps to explain why the value of a share of Grainco stock moved in the way that it did?

(A) Severe drought in the Midwest destroyed a large percentage of the corn crop, forcing Grainco to buy less corn.
(B) Grainco closed a food processing plant in a locality that offered cheap labor and low taxes.
(C) Profits from sales of Grainco oatmeal, which account for a large part of Grainco’s total sales and profits, increased dramatically in both the foreign and domestic markets.
(D) Grainco employees formed a union that helped them get higher salaries and increased medical benefits.
(E) Several articles in prominent business publications listed Grainco as a company that has poor management.


Answer: C

Hi!

In explain questions, the stimulus is usually a set of surprising facts - there seems to be a discrepancy, contradiction or anomalous behaviour. Our job is to find the answer that, if true, resolves the issue.

We start by summarizing the situation:

Grainco's biggest selling product has done poorly in the last 3 years. What do we expect to happen? Stock should drop. What actually happened? Stock went up!

Next, we summarize what we're looking for in a correct answer:

Some event/trend in the last 3 years that would more than make up for the loss of profit from cornflake sales.

Scanning the choices, only (C) matches: another key product ("a large part of Grainco's total sales and profits") had a dramatic rise in profits. Knowing that this is true, it makes perfect sense that stock prices rose instead of fell.

Going into "review mode" and looking at the other choices:

A) bad news - now we're even more confused that stock prices rose; this is a "180" - the opposite of what we wanted.

B) bad news - now we're even more confused that stock prices rose; this is a "180" - the opposite of what we wanted.

D) bad news - now we're even more confused that stock prices rose; this is a "180" - the opposite of what we wanted.

E) ehh - maybe bad news, maybe irrelevant; either way, certainly not a reason why stock prices would rise.

C would be the perfect choice

thanks..