Over the past 5 years, Company X has posted double-digit : GMAT Critical Reasoning (CR)
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# Over the past 5 years, Company X has posted double-digit

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Over the past 5 years, Company X has posted double-digit [#permalink]

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18 Oct 2010, 20:05
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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.
[Reveal] Spoiler: OA

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Re: Assumption CR (500-600 level) [#permalink]

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18 Oct 2010, 20:41
Use POE.

A)Company X has a large market share in its industry.
Irrelevant. Does not tell us how the value of the company's stocks will appreciate.

B)Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.
This tells us that the Sales increased when the operating margins improved. Does not say anything about stock value.

C)The growth of Company X is likely to persist in the future.
Restatement. Does not say anything about stock value.

E) The stock of Company X will outperform other stocks in the same industry.
Comparison with stocks of other companies is irrelevant.

D)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
Correct answer. Author is assuming that the price of the stock should be/will be higher due to the growth in revenues and improvement in operating margins.
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Re: Assumption CR (500-600 level) [#permalink]

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09 Nov 2010, 13:30
Isn't it too hard to assume D....any better explanation?
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Re: Assumption CR (500-600 level) [#permalink]

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10 Nov 2010, 04:43
amma4u wrote:
Isn't it too hard to assume D....any better explanation?

Negate D.

The current price of the stock of Company X [strike]does not[/strike] fully reflects the promising growth prospects of the firm.

So it means that the growth and increasing OPM has already been factored in. So no more scope of growth in share value.

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Re: Assumption CR (500-600 level) [#permalink]

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10 Nov 2010, 10:15
Agree with yossarian84. Negation works best here.
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Re: Assumption CR (500-600 level) [#permalink]

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25 Jan 2011, 09:02
D is correct. But this is a really good question.
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Re: Assumption CR (500-600 level) [#permalink]

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26 Jan 2011, 07:23
D, straight, easy... wish all GMAT questions were like this one
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Re: Assumption CR (500-600 level) [#permalink]

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27 Jan 2011, 06:20
D. good question
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Re: Assumption CR (500-600 level) [#permalink]

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27 Jan 2011, 12:56
D. easy one. No more than 1 contender for OA.
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Re: Assumption CR (500-600 level) [#permalink]

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27 Jan 2011, 13:45
for those using negation technique- keep in mind that it is logical negation that works all the time and not the exact opposite. Check out the Powerscore Bible for more on that technique
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Re: Assumption CR (500-600 level) [#permalink]

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27 Jan 2011, 15:44
What is the source of the question?

Posted from GMAT ToolKit
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Re: Over the past 5 years, Company X has posted double-digit [#permalink]

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30 Aug 2013, 05:21
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The argument concludes that the stock of the firm will experience rapid growth.
The basis for this claim is that the firm has shown strong historical performance
that is likely to continue in the future. The stock will appreciate dramatically in the
future as a result only if it has not already appreciated in anticipation of the
company's expected growth.
(A) The argument focused on the potential for stock appreciation rather than
company weight in the industry. A company with a large market share may well
experience poor stock performance, while a company with a small market share
may continue to grow and increase in value.
(B) Since the conclusion of the argument is made regarding the future outlook, it
is not necessary to assume that the company had been growing, or had even
existed, prior to the past 5 years. A new firm that has been in existence for only 5
years may well present an excellent investment opportunity.
(C) This statement is explicitly stated in the argument and therefore does not
have to be assumed.
(D) CORRECT. If this assumption were not true, i.e. if the current stock price
already reflects future growth prospects, then the premise that the company will
experience high growth is certainly insufficient to warrant future stock price
appreciation, since all of this growth would already be reflected in the current
price. It is necessary to assume that the current price of Company X stock does
not yet reflect the promising growth prospects of the firm, allowing the possibility
that the stock price will rise further.
(E) Note that the argument makes a claim about the absolute return of stock X
rather than its return relative to the industry. Therefore, to justify the rapid growth
in the stock price, it is not necessary to assume that the company will outperform
its competitors. For example, if the industry itself is growing very rapidly, other
companies in the industry can experience just as rapid appreciation in stock
prices.
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Re: Over the past 5 years, Company X has posted double-digit [#permalink]

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02 Mar 2016, 18:56
samark wrote:
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.

ok, let's understand the argument:
last 5y -> XX increase in R.
improvement in operating margins.

growth will continue in the future -> conclusion - stock will increase in value.

1. the price of the stock can be influenced by the increase in R and/or improvement in operating margins
2. the price of the stock does not reflect future increases in revenues (which is kind of unlikely if you think about )

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

A)Company X has a large market share in its industry.
this one is out of scope.

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

C)The growth of Company X is likely to persist in the future.
this is an inference, and is actually stated in the argument. so can't be the assumption.

D)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
AHA! this is the 2 assumption identified by me. If you negate this answer choice - you see how the conclusion is shattered.

E) The stock of Company X will outperform other stocks in the same industry.
comparing with other stocks is out of scope.

D seems to be the best.
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Re: Over the past 5 years, Company X has posted double-digit [#permalink]

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02 Mar 2016, 20:21
siyer wrote:
Use POE.

A)Company X has a large market share in its industry.
Irrelevant. Does not tell us how the value of the company's stocks will appreciate.

B)Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.
This tells us that the Sales increased when the operating margins improved. Does not say anything about stock value.

C)The growth of Company X is likely to persist in the future.
Restatement. Does not say anything about stock value.

E) The stock of Company X will outperform other stocks in the same industry.
Comparison with stocks of other companies is irrelevant.

D)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
Correct answer. Author is assuming that the price of the stock should be/will be higher due to the growth in revenues and improvement in operating margins.

I think if we negate the option C , conclusion falls. IMO, answer shloud be C. How D can be the answer. pls. explain.
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Re: Over the past 5 years, Company X has posted double-digit [#permalink]

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03 Mar 2016, 21:15
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robu wrote:
siyer wrote:
Use POE.

A)Company X has a large market share in its industry.
Irrelevant. Does not tell us how the value of the company's stocks will appreciate.

B)Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.
This tells us that the Sales increased when the operating margins improved. Does not say anything about stock value.

C)The growth of Company X is likely to persist in the future.
Restatement. Does not say anything about stock value.

E) The stock of Company X will outperform other stocks in the same industry.
Comparison with stocks of other companies is irrelevant.

D)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
Correct answer. Author is assuming that the price of the stock should be/will be higher due to the growth in revenues and improvement in operating margins.

I think if we negate the option C , conclusion falls. IMO, answer shloud be C. How D can be the answer. pls. explain.

Option C already stated in the argument.

"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."

Assumption is an unstated premise which should support the conclusion. But option C is the repetition of what has been already stated in the argument.
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Re: Over the past 5 years, Company X has posted double-digit [#permalink]

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08 Mar 2016, 22:10
"C" cannot be the answer since it is clearly stated in the argument that the growth is likely to persist in the future. Assumptions are unstated facts. Assumptions are always implicit never directly stated. Hence "C" can't be the assumption. It is stated that there has been a double digit growth in revenues and the author says that if this growth continues the stocks will experience dramatic appreciation. Hence the author assumes that stocks will appreciate further or in other words the current price of the stocks of company X does not fully reflect the promising growth prospects of the firm. Hence the answer is "D."
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Re: Over the past 5 years, Company X has posted double-digit   [#permalink] 08 Mar 2016, 22:10
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