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Expert replies
by harsh_gupta123 » Wed Feb 10, 2010 1:32 am
To avoid a hostile takeover attempt, the board of directors of Wellco, Inc., a provider of life and health insurance, planned to take out large loans and use them to purchase a publishing company, a chocolate factory, and a nationwide chain of movie theaters. The directors anticipated that these purchase initially would plunge the corporation deep into debt, rendering it unattractive to those who wanted to take it over, but that steadily rising insurance rates would allow the company to pay off the debt within five years. Meanwhile, revenues from the three new businesses would enable the corporation as a whole to continue to meet its increased operating expenses. Ultimately, according o the directors’ plan, the diversification would strengthen the corporation by varying the sources and schedules of its annual revenues.
Which of the following, assuming that all are equally possible, would most enhance the chances of the plan’s success?
(A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide.
(B) New government regulations require a 30 percent across-the-board rate rollback of all insurance companies, to begin immediately and to be completed within a five-year period.
(C) Congress enacts a statute, effective after six months, making it illegal for any parent not to carry health insurance coverage for his or her child.
(D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence.
(E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level.
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Source: — Critical Reasoning |

by komal » Wed Feb 10, 2010 1:34 am
harsh_gupta123 wrote:To avoid a hostile takeover attempt, the board of directors of Wellco, Inc., a provider of life and health insurance, planned to take out large loans and use them to purchase a publishing company, a chocolate factory, and a nationwide chain of movie theaters. The directors anticipated that these purchase initially would plunge the corporation deep into debt, rendering it unattractive to those who wanted to take it over, but that steadily rising insurance rates would allow the company to pay off the debt within five years. Meanwhile, revenues from the three new businesses would enable the corporation as a whole to continue to meet its increased operating expenses. Ultimately, according o the directors’ plan, the diversification would strengthen the corporation by varying the sources and schedules of its annual revenues.

Which of the following, assuming that all are equally possible, would most enhance the chances of the plan’s success?

(A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide.
Incorrect : In this case profits from chocolate business might suffer. This will effect the chances of plan's success. Hence Eliminated.

(B) New government regulations require a 30 percent across-the-board rate rollback of all insurance companies, to begin immediately and to be completed within a five-year period.
Incorrect : Reduction in insurance rate will adversely effect the plan. Eliminated

(C) Congress enacts a statute, effective after six months, making it illegal for any parent not to carry health insurance coverage for his or her child.
Correct : This will mean core business of the company, insurance business, will bring in more revenues and enhance the chances of all other businesses.

(D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence.
Incorrect : This will adversely effect the company's theatre business.

(E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level.
Incorrect : This will generate lesser revenues from publishing company. Eliminated.
Hope this helps : )
Last edited by komal on Wed Feb 10, 2010 7:12 am, edited 1 time in total.
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by thephoenix » Wed Feb 10, 2010 3:18 am
plans success lies in better business by all three

a) choclate business will be effected if there is shortage cacao beans supply ...therefore plan will not be successful

b)30 percent across-the-board rate rollback --->reduction in insurance....therefore plan will not be successful

c)llegal for any parent not to carry health insurance coverage for his or her child. ----> inc in insurance ...therefore plan will successful..correct

d)Large-screen televisions drop---->movie theater attendance dwindles as a consequence---->...therefore plan will not be successful

e)paper prices fall to 60 percent of their former level.---->cop will be less----> but we are not sure about other cost....

plan may not be successful

it was diff to chose b/n C and E
sme how i convinced myself for c
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by raisethebar » Wed Feb 10, 2010 4:49 am
IMO C .
The fall in the papper prices cannot insure the organization's success. It may increase the chances of failure. So not E.


what is OA?
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by nileshdalvi » Wed Feb 10, 2010 6:25 am
Just one point will make C as a clear answer.

Reading the argument very carefully. Main business will get off the debt in 5 years (and will generate good revenue after that is expected.) Meanwhile, profit from other businesses will clear off the whole operating expenses i.e.of insurance as well as 3 businesses. So the new businesses are just for handling of operating expenses of Insurance. The real profit owner is Insurance. So if the Insurance succeeds, the plan of buying 3 companies to handle own as well as insurance expenses will succeed.


Hope this clears and no further need to explain why rest are wrong.

This is a very good example of reading the argument carefully and signifies the importance of having clarity of what role each evidence plays.
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