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$WellCo.

by shipra » Mon Jul 07, 2008 3:49 am
3. 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.

tron bw B and C?
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by jslavi01 » Mon Jul 07, 2008 5:09 am
A) People can't afford chocolate and as a result the company's profits fall

B) The insurance company loses $$ by being forced to reduce premiums by 30%.

C) EVERY CHILD has to have insurance!!

D) Movie profits drop

E) Paper profits drop? Or you sell a ton more paper. But this answer requires too much inference.

I think the answer is C.
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by raunekk » Mon Jul 07, 2008 6:56 am
i will go with C too..

Rest all hampers the plan...
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by lvincy » Mon Jul 07, 2008 1:43 pm
IMO C

C enhances the most.


lvincy
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by loki.gmat » Mon Jul 07, 2008 11:11 pm
now one of the important strategies that the board of directors of Wellco, Inc. intend to implement is to make the company unattractive to potential buyers by increasing the cost n decreasing the profit.

C - says that the Congress is going to bring a law that would encourage the people to buy insurance from insurance companies. hence, there is a possibility that Wellco,as an insurance company, might become attractive bcoz potential buyers might think of the profits it can bring due to the statute.
hence this will weaken the chances of plan's success.

B - due to government regulations, Wellco will definitely lose money earned n hence will become even more unattractive for potential buyers atleast for next five years.hence this will enhance the chance of plan's success.


hence IMO B.


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by svaradhan » Tue Jul 08, 2008 12:54 am
Hi loki.gmat,

It is stated that -"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".

The directors anticipate that purchase will plunge the corp into debt and makes it unattractive. We cannot infer that govt regulations will have the same effect. Moreover, the last sentences says that the plan is to diversify the corporation and earn more revenue.

I am convinced with C. What is OA?
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by nitin86 » Wed Jul 09, 2008 6:02 am
svaradhan wrote:Hi loki.gmat,

It is stated that -"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".

The directors anticipate that purchase will plunge the corp into debt and makes it unattractive. We cannot infer that govt regulations will have the same effect. Moreover, the last sentences says that the plan is to diversify the corporation and earn more revenue.

I am convinced with C. What is OA?
Further, to add to it the argument says " ....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....."

So, the plan is to have profits from the insurance within five years, so if B is true this can't be possible, as insurance cuts would be there..till five years.

Hence, C should be true.
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by agent47 » Sun Jul 13, 2008 9:11 pm
IMO C
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by Vignesh.4384 » Mon Jul 14, 2008 6:42 pm
It has 2 be B.
C is convincing at first. Even i thought C but read the explanation below.

Companys plan: To take a loan and invest in other business.

Reason:
we are asked to strengthen the plan of the insurance company.

Eliminating A D E is not that difficult.

option C: If the insurance coverage were allowed to be carried to the children then i will do the insurance company more damage. i could think of 2 reasons for this.
1)if the insurance was not allowed to be carried on to the children then the children might require a new insurance coverage which will be benefitial to the insurance company.
2)On the other hand if the insurance of the parents were allowed to be claimed by the children then it will decrease the company revenue

But this info is not enough cos we dont hav any information about the people who have subscribed to the insurance. I can even assume that all those who have taken insurance from the company do not have children.Those who are choosing option C are just assuming that the people who already hav policy with the insurance have children. Do not assume if not given in the passage

Option B: The government is asking the insurance companies to roll back and this should start immediately.


IF option B were true then the insurance company will just become less attractive and will avoid take overs.

I feel the right option is B
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by jslavi01 » Wed Jul 16, 2008 10:55 am
The plan assumes
"that steadily rising insurance rates would allow the company to pay off the debt within five years."

(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.

If the government requires the company to roll back rates, the plan will not work as stated in the paragraph.

For each answer that is "equally possible," C by far would have the least effect on the plan based on the facts in the paragraph.
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by linfongyu » Fri Sep 26, 2008 12:13 pm
The question asks, "Which of the following, assuming that all are equally possible, would most enhance the chances of the plan’s success?"

The problem as I see it is there are 2 conclusions. The first is the company avoids being taken over. And the second is that "diversification would strengthen the corporation by varying the sources and schedules of its annual revenues."

B states that the plan would take effect immediately, thus making the insurance company less attractive by cutting its revenue immediately. But in 5 years, it would recover the 30% rate reduction in full (an increase of 6% of present rate per year). Short-term goal accomplished, long-term? Not so sure.

C would increase the insurance company's revenue dramatically in 6 months, according to the government mandate, making it immediately more attractive as a takeover target. Long-term goal? Yes, more diversified, but who cares if they're already bought up by another company!

So, if the takeover threat is a the primary conclusion, in which the second conclusion depends, then B would be the answer.

My 2 cents...
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by peter.p.81 » Wed May 11, 2016 2:55 am
I am leaning more towards C, but I'm not sure about it.
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