Companies considering new cost-cutting manufacturing

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Companies considering new cost-cutting manufacturing [#permalink]

14 Oct 2005, 17:34

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. Companies considering new cost-cutting manufacturing processes often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.
Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?
(A) The costs of materials required by the new process might not be known with certainty.
(B) In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
(C) Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
(D) Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
(E) The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.

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14 Oct 2005, 17:47

C

If projecting the results can be made difficult as in C, it is a disadvantageous to measure the fiscal effectiveness of the new process in the given way.

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14 Oct 2005, 20:17

I would go with A.

what is they are wrong in keeping costs constant? say for example, there is a spike in oil, then the new process may not be good compared to the old.

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Re: CR:investment [#permalink]

14 Oct 2005, 21:34

D is most serious in damaging the conclusion.

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22 Oct 2005, 00:27

costs, selling prices, and share of market remaining constant...its B or C

i go for C...pls post the OA

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22 Oct 2005, 01:12

When they do the comparison, they suppose that costs, selling prices, and market share remain constant.

Therefore, to attack this comparison, we have to show that costs, selling prices, and market share do not remain constant.

(A) It is not about certainty, but about constancy.

(B) Not relevant

(C) Some processes require big investments, and those "some cases" are not important.

(D) Yeah, this is the best answer. Selling prices and market share change!

(E) Not relevant
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[#permalink] 22 Oct 2005, 01:12

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