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Kaplan CR Q4

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Kaplan CR Q4

by confuse mind » Sun Aug 19, 2012 8:12 pm
Ace Automotive Group, a publicly held manufacturer of cars and light trucks, plans to move the production of engines for its automobiles to Mexico from plants in Indiana. However, Ace Automotive will still assemble its cars and trucks in the United States. The president of Ace Automotive announced to Wall Street analysts that this move will save the company $20 million per year even after accounting for the increased transportation costs needed to get the Mexican produced engines to Ace's assembly plants versus current engine transportation costs.

The statements above, if true, best support which of the following assertions?

A. Ace Automotive Group's stock price will rise.

B. Ace Automotive will have to deal with pickets and protests when it closes its engine production facilities in Indiana.

C. Ace Automotive would save more than $20 million per year from this move if engine transportation charges from Mexico equaled the old transportation charges from Indiana.

D. Ace Automotive Group's assembly plants are, on average, closer to the old Indiana engine plants than they are to the new Mexican engine plants.

E. Ace plans to spend less than $20 million on increased transportation costs.
[spoiler]
IMO - D OA - not known.
I am confused in D because increased transportation cost does not necessarily mean increased distance.
But D looks best by POE.[/spoiler]
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by hjafferi » Thu Aug 23, 2012 4:38 am
confuse mind wrote:Ace Automotive Group, a publicly held manufacturer of cars and light trucks, plans to move the production of engines for its automobiles to Mexico from plants in Indiana. However, Ace Automotive will still assemble its cars and trucks in the United States. The president of Ace Automotive announced to Wall Street analysts that this move will save the company $20 million per year even after accounting for the increased transportation costs needed to get the Mexican produced engines to Ace's assembly plants versus current engine transportation costs.

The statements above, if true, best support which of the following assertions?

A. Ace Automotive Group's stock price will rise.
We donot know the company,s financial position or public sentiment therefore cannot comment on the Impact on the stok price. Also it is possible that the company may need to incur additional costs for tranortation tfrom Mexico to assembly p,ant.

B. Ace Automotive will have to deal with pickets and protests when it closes its engine production facilities in Indiana.
We donot know how satisfied or unsatisfied the companys workers are. Or what will be the impact on their morale.

C. Ace Automotive would save more than $20 million per year from this move if engine transportation charges from Mexico equaled the old transportation charges from Indiana.
written that the company expects to save $20 million per year even after accounting for INCREASED tranortation costs........ If the costs are the same I.e there is no increase then the company would be able to save more than $20 million. Hence C should be the answer.


D. Ace Automotive Group's assembly plants are, on average, closer to the old Indiana engine plants than they are to the new Mexican engine plants.
We donot know whether the plants are closer or not just that transportation cost will rise. The terrain could be difficult and Mexico plant can be close. So we really donot know

E. Ace plans to spend less than $20 million on increased transportation costs.
No context. As $ 20million is what would be saved not the total transportation. Cost.
[spoiler]

Answer should be C


I am confused in D because increased transportation cost does not necessarily mean increased distance.
But D looks best by POE.[/spoiler]
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by KapTeacherEli » Thu Aug 23, 2012 11:30 am
hjafferi's explanation for (C) is spot on! confuse mind, to clarify (D), there are a lot of things that can play into costs other than distance. Not just terrain, but border crossings, quality of roads, cost of gasoline that differs by state, etc. In addition, the average distances of the assembly plants isn't useful unless we know the proportional output of those plants--if the major plant is near Indiana but multiple minor plants are near Mexico, the averages would be skewed.

As a result, (D) simply leaves too many variables out to be properly inferable, and (C) is unambiguous as the right choice.

Regards,
Eli Meyer
Kaplan GMAT Teacher
Cambridge, MA
www.kaptest.com/gmat

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