Last visit was: 17 May 2024, 23:55 It is currently 17 May 2024, 23:55
Close
GMAT Club Daily Prep
Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

Customized
for You

we will pick new questions that match your level based on your Timer History

Track
Your Progress

every week, we’ll send you an estimated GMAT score based on your performance

Practice
Pays

we will pick new questions that match your level based on your Timer History
Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.
Close
Request Expert Reply
Confirm Cancel
SORT BY:
Date
Tags:
Show Tags
Hide Tags
Math Expert
Joined: 02 Sep 2009
Posts: 93334
Own Kudos [?]: 624585 [0]
Given Kudos: 81898
Send PM
Manager
Manager
Joined: 13 Sep 2020
Posts: 72
Own Kudos [?]: 73 [3]
Given Kudos: 156
Location: India
Concentration: General Management, Strategy
GMAT Focus 1:
575 Q79 V79 DI77
GMAT 1: 460 Q36 V18 (Online)
GPA: 3.8
Send PM
Intern
Intern
Joined: 23 Dec 2023
Posts: 23
Own Kudos [?]: 4 [0]
Given Kudos: 197
Send PM
Manhattan Prep Instructor
Joined: 22 Mar 2011
Posts: 2658
Own Kudos [?]: 7790 [1]
Given Kudos: 56
GMAT 2: 780  Q50  V50
Send PM
Re: A new company can offer stocks in an initial public offering (IPO) [#permalink]
1
Kudos
Expert Reply
Freddy12 wrote:
Hi Bunuel GMATNinja
I chose E because the question talks about generating long term profits. Whereas the company Tenon Corp has generated profit for the last quarter only. Thus it's irrelevant comparison.

Can you help?

Posted from my mobile device

­The trouble with that reasoning is that the argument itself doesn't draw a comparison. It simply uses the profits from last quarter to predict a rise in stock price. However, the other premise only tells us to expect an increase in stock price when a company seems "likely to generate profits." So the argument is relying on the past to predict the future, as A describes. 

Notice that the argument doesn't actually rely on the "long-term profits" part. On the contrary, we're told that an IPO happens before a company proves that it can provide such profits. Rather, we only have to look at whether the company seems likely to be profitable; we're not looking for an actual long-term record.

In any case, the author never directly compares one kind of profit to another, so we can't criticize it for a faulty comparison. We'd choose E for an argument that explicitly compared one thing to another when it didn't make sense to do so. For instance, what if I said "An ice cream sundae contains more nutrients than a blueberry, so ice cream is a healthier food than blueberries"? That's a faulty comparison. I didn't choose similarly-sized options, for one, and I didn't consider any ways in which the ice cream might be LESS healthy. So I made a direct comparison, but the reasoning was bad. I hope that helps!
Math Expert
Joined: 02 Sep 2009
Posts: 93334
Own Kudos [?]: 624585 [0]
Given Kudos: 81898
Send PM
Re: A new company can offer stocks in an initial public offering (IPO) [#permalink]
Expert Reply
Bunuel wrote:
­A new company can offer stocks in an initial public offering (IPO) before the company has proven itself capable of generating long-term profits for its stockholders. Historically, if a compasny has seemed likely to generate profits, the stock price in the IPO has risen; if the company seemed less likely to generate profits, the stock price in the IPO has fallen. Today business analysts announced that the Tenon Corporation has turned a profit in the financial quarter just completed. Therefore, stock prices for the Tenon Corporation’s IPO, which is planned for next week, will rise.

The author’s conclusion about Tenon Corporation is based on faulty reasoning because it

A. depends on the assumption that what has been true in the past will hold true in the future.
B. relies on a line of reasoning that is circular.
C. confuses cause with effect.
D. overlooks cases in which the counter-example is true.
E. rests on a faulty comparison.


­
This is a CR Butler Question

    Check the links to other Butler Projects:
 
­

­

PRINCETON REVIEW OFFICIAL EXPLANATION:



A

This is a reasoning question, so pay attention to how the author constructs his argument. He takes a historical trend and uses it to predict the outcome of a specific event. As you read through the answer choices, simply ask yourself, “Did he do that?”

(A) Yes. The author based his conclusion about Tenon on the assumption that what has been true in the past (in an IPO, a company that seemed likely to generate profits saw an increase in their stock price) will be true for Tenon.

(B) No. There is no circular reasoning here.

(C) No. There is no confusion of cause and effect—potential profits cause an increase in stock price.

(D) No. There are no counterexamples given, so this answer choice is out of scope.

(E) No. There is no comparison made in the argument, so this cannot be the credited response.­
GMAT Club Bot
Re: A new company can offer stocks in an initial public offering (IPO) [#permalink]
Moderators:
GMAT Club Verbal Expert
6929 posts
GMAT Club Verbal Expert
238 posts
CR Forum Moderator
832 posts