Company owned private aircrafts

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Company owned private aircrafts

by pareekbharat86 » Mon Nov 18, 2013 8:16 am
Federal law prohibits businesses from reimbursing any employees for the cost of owning and operating a private aircraft that is used for business purposes. Thus, many American companies themselves purchase private aircraft. The vast majority of the business aviation fleet is owned by small and mid-size businesses, and flights are strictly for business purposes, with mostly mid-level employees on board. These companies and their boards of directors are in full compliance with the law and with what is best for their businesses.

Which of the following can be most properly inferred from the statements above?

a. The Federal law in question costs businesses money.
b. Most executives would rather fly on company owned planes than on commercial airlines.
c. Large businesses usually have their executives fly first or business class on commercial flights.
d. Upper level executives are less often in compliance with the law.
e. By not receiving any reimbursement for these flights, the mid-level executives on board are complying with the law.

OA is E.

Source- Manhattan Practice Test
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by Mike@Magoosh » Mon Nov 18, 2013 11:33 am
pareekbharat86 wrote:Federal law prohibits businesses from reimbursing any employees for the cost of owning and operating a private aircraft that is used for business purposes. Thus, many American companies themselves purchase private aircraft. The vast majority of the business aviation fleet is owned by small and mid-size businesses, and flights are strictly for business purposes, with mostly mid-level employees on board. These companies and their boards of directors are in full compliance with the law and with what is best for their businesses.

Which of the following can be most properly inferred from the statements above?

a. The Federal law in question costs businesses money.
b. Most executives would rather fly on company owned planes than on commercial airlines.
c. Large businesses usually have their executives fly first or business class on commercial flights.
d. Upper level executives are less often in compliance with the law.
e. By not receiving any reimbursement for these flights, the mid-level executives on board are complying with the law.

OA is E.

Source- Manhattan Practice Test
Bharat,

I'm happy to help with this. :-)

First of all, notice this is an inference question. The GMAT loves to ask about inference on the CR & RC. Here are a couple blogs about inference on the GMAT:
https://magoosh.com/gmat/2012/inference- ... rehension/
https://magoosh.com/gmat/2013/gmat-criti ... inference/
In general, on the GMAT, a good inference is a statement that absolutely must be true, given that the statements in the prompt are true. There's absolute no doubt, no extra assumptions, etc.

Now, let's look at the answer choices here.
(A) The Federal law in question costs businesses money.
Hmmm. Does buying private planes cost more than reimbursing employees using their planes? We would have to know a great deal more to decide this, so this is not a good inference.

(B) Most executives would rather fly on company owned planes than on commercial airlines.
Hmmm. The argument is about complying with the law. What folks would rather do is not relevant, where the law is concerned. We don't know whether the executive would prefer to fly on company owned plans, or whether the company chooses this for the executives because it is cheaper than flying all of them first class.

(C) Large businesses usually have their executives fly first or business class on commercial flights.
Hmmm. This prompt tell us about what "small and mid-size businesses" do. We don't get information about what large businesses do. Maybe they fly first class, or maybe there's another legal option that is not discussed here. We don't know.

(D) Upper level executives are less often in compliance with the law.
We don't know this at all. All the prompt tells us is what the "mid-level employees" employees do to comply with the law. We don't know what upper level executives do, and whether or not they comply with the law.

(E) By not receiving any reimbursement for these flights, the mid-level executives on board are complying with the law.
There is no doubt about this. The prompt tell us that, "These companies ... are in full compliance with the law ...". The executives are on board company planes, so would be no reason to reimburse them (they would only be reimbursed if they used their own planes, which is against Federal Law). Therefore, the executives, in not getting reimbursed, would have to be in full compliance of the law. There's absolutely no doubt about this point. That's what makes this an excellent GMAT inference.

Of course, MGMAT always writes questions of exceptionally high quality.

Does all this make sense?
Mike :-)
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by pareekbharat86 » Mon Nov 18, 2013 8:50 pm
Mike@Magoosh wrote:
pareekbharat86 wrote:Federal law prohibits businesses from reimbursing any employees for the cost of owning and operating a private aircraft that is used for business purposes. Thus, many American companies themselves purchase private aircraft. The vast majority of the business aviation fleet is owned by small and mid-size businesses, and flights are strictly for business purposes, with mostly mid-level employees on board. These companies and their boards of directors are in full compliance with the law and with what is best for their businesses.

Which of the following can be most properly inferred from the statements above?

a. The Federal law in question costs businesses money.
b. Most executives would rather fly on company owned planes than on commercial airlines.
c. Large businesses usually have their executives fly first or business class on commercial flights.
d. Upper level executives are less often in compliance with the law.
e. By not receiving any reimbursement for these flights, the mid-level executives on board are complying with the law.

OA is E.

Source- Manhattan Practice Test
Bharat,

I'm happy to help with this. :-)

First of all, notice this is an inference question. The GMAT loves to ask about inference on the CR & RC. Here are a couple blogs about inference on the GMAT:
https://magoosh.com/gmat/2012/inference- ... rehension/
https://magoosh.com/gmat/2013/gmat-criti ... inference/
In general, on the GMAT, a good inference is a statement that absolutely must be true, given that the statements in the prompt are true. There's absolute no doubt, no extra assumptions, etc.

Now, let's look at the answer choices here.
(A) The Federal law in question costs businesses money.
Hmmm. Does buying private planes cost more than reimbursing employees using their planes? We would have to know a great deal more to decide this, so this is not a good inference.

(B) Most executives would rather fly on company owned planes than on commercial airlines.
Hmmm. The argument is about complying with the law. What folks would rather do is not relevant, where the law is concerned. We don't know whether the executive would prefer to fly on company owned plans, or whether the company chooses this for the executives because it is cheaper than flying all of them first class.

(C) Large businesses usually have their executives fly first or business class on commercial flights.
Hmmm. This prompt tell us about what "small and mid-size businesses" do. We don't get information about what large businesses do. Maybe they fly first class, or maybe there's another legal option that is not discussed here. We don't know.

(D) Upper level executives are less often in compliance with the law.
We don't know this at all. All the prompt tells us is what the "mid-level employees" employees do to comply with the law. We don't know what upper level executives do, and whether or not they comply with the law.

(E) By not receiving any reimbursement for these flights, the mid-level executives on board are complying with the law.
There is no doubt about this. The prompt tell us that, "These companies ... are in full compliance with the law ...". The executives are on board company planes, so would be no reason to reimburse them (they would only be reimbursed if they used their own planes, which is against Federal Law). Therefore, the executives, in not getting reimbursed, would have to be in full compliance of the law. There's absolutely no doubt about this point. That's what makes this an excellent GMAT inference.

Of course, MGMAT always writes questions of exceptionally high quality.

Does all this make sense?
Mike :-)
Hi Mike,

Thanks for your response. I was also tempted to choose E since it mentioned complying with law, which is the main point of the stimulus. However, I felt it wasn't the right choice. Reason- We have been told that 'businesses' are prohibited by the federal law to reimburse the employees. That means, if businesses are found reimbursing such expenses, they'd be guilty of violating the law. That employees too would be guilty in such a case is not mentioned. Whether employees are complying with the law is irrelevant for this question.

For me, B was a better option. The fact that the companies are buying air-crafts (which entail heavy capital expenditure) means that their employees are reluctant to use the commercial airlines (for whatever reason). Or else, why wouldn't they just purchase tickets of commercial air-crafts?

Could you please help me out here, Mike?
Thanks,
Bharat.

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by Mike@Magoosh » Tue Nov 19, 2013 10:15 am
pareekbharat86 wrote:Hi Mike,

Thanks for your response. I was also tempted to choose E since it mentioned complying with law, which is the main point of the stimulus. However, I felt it wasn't the right choice. Reason- We have been told that 'businesses' are prohibited by the federal law to reimburse the employees. That means, if businesses are found reimbursing such expenses, they'd be guilty of violating the law. That employees too would be guilty in such a case is not mentioned. Whether employees are complying with the law is irrelevant for this question.

For me, B was a better option. The fact that the companies are buying air-crafts (which entail heavy capital expenditure) means that their employees are reluctant to use the commercial airlines (for whatever reason). Or else, why wouldn't they just purchase tickets of commercial air-crafts?

Could you please help me out here, Mike?
Dear Bharat,

Here's the problem with (B). I don't know how much experience you have with the business world. Large corporations rarely do anything solely because it will make its employees, even its mid-level executives, happy. Employee happiness is simply not on the balance sheet. Typically, corporations make major decisions determined solely by what is most cost-effective. A corporation would NEVER spend hundreds of millions of dollars on a plane fleet unless it was reasonably clear that the purchase would save them money in the long run --- perhaps the initial outlay and maintenance costs are, in the long run, less than buying first-class tickets on major airlines for folks multiple times in a year.

When people have to fly for work, they typically aren't going to shell out their own money --- that runs into big bucks very quickly. Typically, employees take the mode of travel their company covers. If the company decided to invest in their own planes, then the company most certainly is not going to pay for any employees to have a first class ticket on a major airline when they can fly at no additional cost on a company plane. It doesn't matter what the employees would prefer. If the company owns planes, then when the employees have to fly, they are going to fly on company planes, like it or not.

You have to think about who has power in this decision. In any company policy decision, the corporation essentially has all the power, and employees, including mid-level executives, have no power. What they want or would prefer simply doesn't matter.

My friend, how much experience do you have with how corporations make decisions? I would strongly recommend reading the Wall Street Journal daily and the Economist magazine weekly. Such reading would bolster your verbal skills in general, it would give you the necessarily background for interpreting business-related CR arguments, and it would make you look much more informed in your b-school applications & interviews.

Does all this make sense?
Mike :-)
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by pareekbharat86 » Tue Nov 19, 2013 8:53 pm
Mike@Magoosh wrote:
pareekbharat86 wrote:Hi Mike,

Thanks for your response. I was also tempted to choose E since it mentioned complying with law, which is the main point of the stimulus. However, I felt it wasn't the right choice. Reason- We have been told that 'businesses' are prohibited by the federal law to reimburse the employees. That means, if businesses are found reimbursing such expenses, they'd be guilty of violating the law. That employees too would be guilty in such a case is not mentioned. Whether employees are complying with the law is irrelevant for this question.

For me, B was a better option. The fact that the companies are buying air-crafts (which entail heavy capital expenditure) means that their employees are reluctant to use the commercial airlines (for whatever reason). Or else, why wouldn't they just purchase tickets of commercial air-crafts?

Could you please help me out here, Mike?
Dear Bharat,

Here's the problem with (B). I don't know how much experience you have with the business world. Large corporations rarely do anything solely because it will make its employees, even its mid-level executives, happy. Employee happiness is simply not on the balance sheet. Typically, corporations make major decisions determined solely by what is most cost-effective. A corporation would NEVER spend hundreds of millions of dollars on a plane fleet unless it was reasonably clear that the purchase would save them money in the long run --- perhaps the initial outlay and maintenance costs are, in the long run, less than buying first-class tickets on major airlines for folks multiple times in a year.

When people have to fly for work, they typically aren't going to shell out their own money --- that runs into big bucks very quickly. Typically, employees take the mode of travel their company covers. If the company decided to invest in their own planes, then the company most certainly is not going to pay for any employees to have a first class ticket on a major airline when they can fly at no additional cost on a company plane. It doesn't matter what the employees would prefer. If the company owns planes, then when the employees have to fly, they are going to fly on company planes, like it or not.

You have to think about who has power in this decision. In any company policy decision, the corporation essentially has all the power, and employees, including mid-level executives, have no power. What they want or would prefer simply doesn't matter.

My friend, how much experience do you have with how corporations make decisions? I would strongly recommend reading the Wall Street Journal daily and the Economist magazine weekly. Such reading would bolster your verbal skills in general, it would give you the necessarily background for interpreting business-related CR arguments, and it would make you look much more informed in your b-school applications & interviews.

Does all this make sense?
Mike :-)
Hi Mike,

Thanks for your response and the scathing assumption you made about my work experience. Anyway, I have sufficient work experience to understand how businesses are run. I also remember instances of giant CEOs travelling in their comapnies' pvt. jets and seeking bail-out from their govts. for their otherwise dwindling businesses (tongue in cheek) :-)

However, I am not as experienced as you are with GMAT. The fact that we should not bring in our opinions based on our background into CR has been reiterated time and again by books on GMAT.

Thanks for your lengthy response!

Good Day.
Thanks,
Bharat.

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by Mike@Magoosh » Wed Nov 20, 2013 10:24 am
pareekbharat86 wrote: However, I am not as experienced as you are with GMAT. The fact that we should not bring in our opinions based on our background into CR has been reiterated time and again by books on GMAT.
Dear Bharat,
I apologize if I caused any offense. Some folks on this site have very little business experience, and sometimes ask questions along these lines.

The issue of "outside knowledge" on GMAT CR is very tricky, and it is important not to take that injunction to an extreme. It's true, if the CR argument is about, say, paving roads, and we happen to have some special knowledge about paving roads, we have to leave our special knowledge aside and judge the question based on what appears. BUT, it's very important that we bring to the GMAT CR our general real-world instincts, especially our general instinct for how businesses operate and what motivates them. Specialized knowledge that only a person working in a particular field would know is not appropriate to bring to the GMAT CR, but general knowledge of how businesses operate, how the market performs, etc. --- all that is absolutely essential.

Does this make sense?
Mike ;-)
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by pareekbharat86 » Fri Nov 22, 2013 12:47 am
Mike@Magoosh wrote:
pareekbharat86 wrote: However, I am not as experienced as you are with GMAT. The fact that we should not bring in our opinions based on our background into CR has been reiterated time and again by books on GMAT.
Dear Bharat,
I apologize if I caused any offense. Some folks on this site have very little business experience, and sometimes ask questions along these lines.

The issue of "outside knowledge" on GMAT CR is very tricky, and it is important not to take that injunction to an extreme. It's true, if the CR argument is about, say, paving roads, and we happen to have some special knowledge about paving roads, we have to leave our special knowledge aside and judge the question based on what appears. BUT, it's very important that we bring to the GMAT CR our general real-world instincts, especially our general instinct for how businesses operate and what motivates them. Specialized knowledge that only a person working in a particular field would know is not appropriate to bring to the GMAT CR, but general knowledge of how businesses operate, how the market performs, etc. --- all that is absolutely essential.

Does this make sense?
Mike ;-)
Thanks!
Thanks,
Bharat.