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Annual Revenues

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Annual Revenues

by jain2016 » Tue Mar 29, 2016 6:43 am
Over the past 5 years, Company X has posted double-digit growth in annual revenues, combined with a substantial improvement in operating margins. Since this growth is likely to persist in the future, the stock of Company X will soon experience dramatic appreciation.

The argument above is based on which of the following assumptions?

A) Company X has a large market share in its industry.

B) Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.

C) The growth of Company X is likely to persist in the future.

D) The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.

E) The stock of Company X will outperform other stocks in the same industry.

OAD

Hi Experts ,

Please advise why notC

Conclusion is -- the stock of Company X will soon experience dramatic appreciation

So if I use negation method for option C, it clearly contradicts the option C.

After Negation -- The growth of Company X is not likely to persist in the future. right?

Please explain and correct me.

Many thanks in advance.

SJ
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by MartyMurray » Tue Mar 29, 2016 7:27 am
jain2016 wrote:Hi Experts ,

Please advise why notC

Conclusion is -- the stock of Company X will soon experience dramatic appreciation

So if I use negation method for option C, it clearly contradicts the option C.

After Negation -- The growth of Company X is not likely to persist in the future. right?

Please explain and correct me.

Many thanks in advance.

SJ
The reason that C is not the correct answer is that C is not an assumption. Rather, what C says has already been stated as fact in the argument. C is a premise upon which the conclusion is based.

Here is an analogous situation.

Argument: It is raining today. So the grass will not need watering.

It is raining today is stated as fact. So that is is raining is not an assumption.

Assumptions are things that connect the premises to the conclusion. In this little argument, an assumption is something that connects It is raining to the grass will not need watering. One such assumption is that the rain will provide sufficient water to the grass.

Yes, if you negate the premises of an argument, the argument is destroyed, but that does not make a premise into an assumption.

Back to the prompt, the argument has already stated as fact "this growth is likely to persist in the future." That the growth will persist is a premise that needs to be connected via some assumption the the prediction of the stock price increase. Answer choice D provides such a connection.

One takeaway here is that simple application of rules such as the negation test can be a little hazardous. To really consistently get right answers to CR questions, you need to clearly see what is going on in the prompts, questions, and answer choices, and not be overly reliant on simple strategies. That having been said, this question does not reflect any official assumption question that I have seen, in that I have never seen in an official CR assumption question one of the premises of the argument quoted so exactly in an answer choice and in such a way that applying the negation test would destroy the argument by negating a key premise.
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