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To avoid a hostile takeover attempt, the board of directors

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Re: Wellco company [#permalink]

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New post 30 Dec 2010, 05:44
feruz77 wrote:
The OA is a bit confusing and questionable, hence, not reliable because in the question stem there is no information about children and a number of them who do not have insurance. We cannot be sure that through compulsory enhancing the number of insured people the revenues will be increased insofar as we do not posses necessary data about children to be given an insurance. E.g. current number of people who have got an insurance from the Wellco company is, say, 10,000 and a number of prospective children to be insured are 1 million, then the option C stands to be correct. But if a number of prospective children to be insured are only 100 then ans C can be easily rejected. In result of such an uncertainty the OA remains debatable.


Feruz, OA doesnt guarantee the success of the plan. But does it make the plan's success more likely than do the other choices. I think, it does.
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Re: Wellco company [#permalink]

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New post 16 Mar 2011, 05:44
Agree with KnewtonAlex

this is an example of bad not-GMAT-like question.

A is still debatable (rising cost of raw materials may mean everything we can not readily assumes smth to be true if it is not true), while C and E are both may be true.

Answer C readily assumes that there are parents who do not insure their children and thus if the law is encated then Wellco, Inc., will benefit from this change. What if all parents love theri children so much that all of adults insured their kids when they born. Then if the act is enacted, Wellco, Inc., will have 0% or revenue increase.

poorly constructed question.
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Re: Wellco company [#permalink]

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New post 17 Mar 2011, 12:50
I had E. Dont know why C is the answer.. If 6 months down insurance is made mandatory then this is good enuf reason for any company to take over the insurance compay, which , in the first place , was the idea for buying all 3 companies
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Re: To avoid a hostile takeover attempt, the board of directors [#permalink]

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New post 22 Feb 2014, 06:46
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Re: To avoid a hostile takeover attempt, the board of directors [#permalink]

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New post 01 Mar 2014, 03:22
With A, even if chocolate prices may rise, the raw material cost is high, so the rise in chocolate prices may be compensated leaving the company with same revenues as in the past, so I ruled out A.

With C & E I was having same problem that is each talks about only 1 business and leaves out other three. I picked E because it quantified 60% price drop in raw material leading me to think the revenue growth will become strong.

Like few posters, I feel the OA is debatable.
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Re: To avoid a hostile takeover attempt, the board of directors [#permalink]

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New post 05 Jun 2015, 14:41
Hello from the GMAT Club VerbalBot!

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

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New post 19 May 2016, 20:44
initially, i was thinking that the conclusion will be something like this:
The directors anticipate that purchase will plunge the corp into debt and makes it unattractive. Thus, the conclusion is corporation wants to plunge its profit and suffer loses during the first 5 years to make it unattractive.

But upon close examination, the sentence continues:
"but that steadily rising insurance rates would allow the company to pay off the debt within five years."
so, my conclusion deviates and becomes " the corporation wants to plunge into debt initially, but it wants to make profit from the rising insurance rates to cover the debt losses in 5 years".

(A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide. - weakens the argument. prices dive ---> profits decrease ---> corp might not earn profit to cover losses.
(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. - weakens argument. rollback of 30% price ---> profits decrease ---> corp might not earn profit to cover losses.
(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. - strengthen argument ---> parents MUST buy health insurance coverage for child --> profits from additional insurance premiums collected ---> intent of the argument.
(D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence. - weakens the argument. revenues drop from dwindling movie theater attendance ---> profits decrease ---> corp might not earn profit to cover losses.
(E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level - weakens the argument. prices of paper falls---> profits decrease ---> corp might not earn profit to cover losses.
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Re: To avoid a hostile takeover attempt, the board of directors [#permalink]

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New post 19 May 2016, 23:40
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

Bit tricky, btw C and E, I feel C strengthens more the plan . If law makes it mandatory for parents to take insurance for children then the sales of the insurance company increases and the parent company will make the loan payments more easily and in less time .

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Re: To avoid a hostile takeover attempt, the board of directors   [#permalink] 19 May 2016, 23:40

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