OFFICIAL EXPLANATION:
Evaluation of a Plan
Situation An entrepreneur estimates that she can sell an employee-benefit service to 1 or 2 percent of the 14 million small businesses in the United States, thus gaining at least around 1 percent of 14 million, i.e., an estimated 140,000 business customers or more.
Reasoning What would most likely cause the entrepreneur’s plan to fail? Note that only small businesses with employees will be suitable customers for the employee-benefit service. The plan could fail if there are likely to be far fewer such customers than estimated.
A Correct. This new information indicates that fewer than 3 million small businesses are even possible candidates for purchase of the employee-benefit package. One percent of 3 million is 30,000—less than one-quarter of the entrepreneur’s initial estimate. If the entrepreneur had neglected to take this fact into account when producing her estimate, her plan might fail as a result.
B Absent other information, this information would make it more likely that the entrepreneur’s estimate of at least 140,000 customers was correct, possibly leading to success of her business plan.
C This answer choice indicates that there is some interest in the services the entrepreneur plans to offer; if the information given is true, it would weakly support the prediction that the plan would succeed.
D This information makes it more likely that the entrepreneur’s business plan would succeed.
E Given that the entrepreneur’s plan anticipates providing services to businesses with employees, the information in this answer choice, in suggesting that such businesses are more profitable, make it slightly more likely that the entrepreneur’s plan will succeed, since more profitable businesses would be more able to afford the benefits package.