To avoid a hostile takeover attempt, the board of directors : GMAT Critical Reasoning (CR)
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# To avoid a hostile takeover attempt, the board of directors

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To avoid a hostile takeover attempt, the board of directors [#permalink]

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06 Aug 2006, 07:35
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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 directorsâ€™ 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 planâ€™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.
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06 Aug 2006, 07:48
.
.
.
.
.
E
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06 Aug 2006, 07:54
CHEN wrote:
.
.
.
.
.
E

why not C? its C for me.
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06 Aug 2006, 08:04
I would say E as the plan is related to the new things sited in the argument and not the parent business.
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06 Aug 2006, 08:58
E drop in paper price lead to higher profit margin of publishing company
which enchance higher success rate of publishing company
and this publishing company is one of company's diversification portfolio

from statement conclusion,
Ultimately, according o the directorsâ€™ plan,
the diversification would strengthen the corporation
by varying the sources and schedules of its annual revenues.
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07 Aug 2006, 01:29
Will go with E.

Meanwhile, revenues from the three new businesses would enable the corporation as a whole to continue to meet its increased operating expenses.

For the plan to succeed its imperative that the company meet its increased operating expenses.
If the price of paper falls drastically, the operating expense of the publishing business will be very less and hence the company can support it well.
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07 Aug 2006, 08:09
I got stuck between B and C.

Health Insurance Vs 3 new businesses.

B govt plan to Rollback of insurance companies means only new businesses could help and the plan would be success.

C. Enroll more people would give more revenue to the Insurance company. But we are not sure about that information.

So I will go with B
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07 Aug 2006, 11:16
C

A D and E are straight out because these cover only one aspect. Keep in mind that to pay off the HEAVY debt, main business should flourish. Other three branches covers ONLY operating costs.

B is neither strengthening nor weakening.

C is the only one by which company will get more revenue and this revenue will help pay off the debt.
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07 Aug 2006, 16:11
OA is (C)
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07 Aug 2006, 16:29
Director
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07 Aug 2006, 17:11
I was for 'C' as well.
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19 Aug 2006, 01:54
If Congress enacted the statute suggested in (C), insurance rates would inevitably rise over the next few years, therefore keeping Wellco lucrative enough to pay off the debt incurred from its diversified investments, while, at the same time, protecting the company from a hostile takeover (at least on paper ).

1:59
19 Aug 2006, 01:54
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# To avoid a hostile takeover attempt, the board of directors

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