This question is absolutely terrible! The GMAT would NEVER give a situation with this many complexities in it, and then give so many defensible answers. The OA, C, would definitely help the company (its a health insurance company, after all, so a mandate to provide health insurance to children should be helpful), but choices A and E are both helpful for the company as well. Of course the drop in paper prices would help the publishing company, and a rise in chocolate prices would help the chocolate company.
We do NOT recommend anybody using this question as an honest learning experience.
What this question is going for is only evident in this sentnce: "...that steadily rising insurance rates would allow the company to pay off the debt within five years." This indicates that the plan hinges on a rise in insurance rates. Then, choice C is supposed to state that the new law, effective after only six months (which is less than five years), makes the plan more likely to work. This ALMOST makes sense, but not really. "Rising insurance RATES" does not match answer choice C: in fact, logically, if everybody were required to buy insurance, rates could go DOWN.
In fact, on the GMAT, what is far more likely to be asked about is the strategy about taking out large loans and then expecting the diversification of the company to allow them to be repaid. We at Knewton think that A,C, and E all accomplish this. This question is not GMAT-like.
ritula wrote:
To avoid a hostile takeover attempt, the board of directors of Wellco, Inc., a provider of life and health insurance, planned to take out large loans and use them to purchase a publishing company, a chocolate factory, and a nationwide chain of movie theaters. The directors anticipated that these purchase initially would plunge the corporation deep into debt, rendering it unattractive to those who wanted to take it over, but that steadily rising insurance rates would allow the company to pay off the debt within five years. Meanwhile, revenues from the three new businesses would enable the corporation as a whole to continue to meet its increased operating expenses. Ultimately, according o the directors’ plan, the diversification would strengthen the corporation by varying the sources and schedules of its annual revenues.
Which of the following, assuming that all are equally possible, would most enhance the chances of the plan’s success?
(A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide.
(B) New government regulations require a 30 percent across-the-board rate rollback of all insurance companies, to begin immediately and to be completed within a five-year period.
(C) Congress enacts a statute, effective after six months, making it illegal for any parent not to carry health insurance coverage for his or her child.
(D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence.
(E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level