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Companies considering new cost-cutting manufacturing

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Companies considering new cost-cutting manufacturing [#permalink] New post 24 Apr 2010, 12:19
00:00
A
B
C
D
E

Difficulty:

  5% (low)

Question Stats:

40% (02:54) correct 60% (03:02) wrong based on 5 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 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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Re: cost-cutting manufacturing processes [#permalink] New post 25 Apr 2010, 06:12
IMO D
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Re: cost-cutting manufacturing processes [#permalink] New post 25 Apr 2010, 07:58
Why A is wrong ?
What is OA ?
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Re: cost-cutting manufacturing processes [#permalink] New post 25 Apr 2010, 08:24
The bull's eye is the part - selling prices, and share of market remaining constant. This is assumed that some factors will remain constant. If this assumption is challeneged then that provides the answer. IMO D.


noboru 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 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. [Out of scope. Incorrect]
(B) In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment. [New info is added which is out of context. Incorrect]
(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. [Close contender, but it doesn't challenge the assumption stated in the question stem. Beware this is SHELL
Game scenarioIncorrect]
(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. [Correct]
(E) The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result. [projected results are compared not the Period of investment. Incorrect]


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Re: cost-cutting manufacturing processes   [#permalink] 25 Apr 2010, 08:24
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