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Companies considering new cost-cutting manufacturing

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Companies considering new cost-cutting manufacturing [#permalink] New post 17 Mar 2010, 19:08
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62% (02:15) correct 38% (01:58) wrong based on 11 sessions
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 constants.

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 certainity.
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.

[Reveal] Spoiler:
D

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Re: cost-cutting manufacturing processes [#permalink] New post 21 Mar 2010, 14:48
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Re: cost-cutting manufacturing processes [#permalink] New post 21 Mar 2010, 15:35
Treat this as a weaken question

Investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constants.

D says that this model is flawed because companies who make investments will reduce there costs in future. so costs can not remain constant

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. - gives an advantage on using the manufacturing process , but does not hurt the conclusion - companies can still use the comparison

Answer -D , attack the conclusion and you will get the answer
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Re: Companies considering new cost-cutting manufacturing [#permalink] New post 11 Oct 2013, 11:54
BarneyStinson wrote:
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 constants.

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 certainity.
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.

[Reveal] Spoiler:
D


This is a tough one Barney but you know what? I'm going with with (D) because it directly addresses a disadvantage pointed out in the stimulus.
Though let me tell you that C is pretty close.
Let us know what your thoughts are on this one

Cheers
Re: Companies considering new cost-cutting manufacturing   [#permalink] 11 Oct 2013, 11:54
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