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# CEO: Over the past several years, we have more than doubled our revenu

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Senior Manager
Joined: 21 May 2015
Posts: 259
Concentration: Operations, Strategy
GMAT 1: 750 Q50 V41
CEO: Over the past several years, we have more than doubled our revenu [#permalink]

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02 Jun 2015, 22:10
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15% (low)

Question Stats:

80% (01:05) correct 20% (01:38) wrong based on 238 sessions

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CEO: Over the past several years, we have more than doubled our revenues but profits have steadily declined because an increasing number of customers have failed to pay their balances. In order to compensate for these higher default rates, we will increase the interest charged on outstanding balances from an annual percentage rate (APR) of 9.5% to an APR of 12%. This increase will be sufficient to compensate for the current rate of defaults and allow us to increase our profits.

Which of the following statements, if true, would most seriously undermine a plan to increase interest rates in order to spur profitable growth?

(A) Many other companies have experienced a similar trend in their default rates.

(B) The company's operating expenses are above the industry average and can be substantially reduced, thus increasing margins.

(C) The increase in default rates was due to a rise in unemployment, but unemployment rates are expected to drop in the coming months.

(D) The proposed increase in the APR will, alone, more than double the company's profit margins.

(E) An increase in the APR charged on credit card balances often results in higher rates of default.

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Apoorv

I realize that i cannot change the world....But i can play a part

Veritas Prep GMAT Instructor
Joined: 23 Oct 2013
Posts: 144
Re: CEO: Over the past several years, we have more than doubled our revenu [#permalink]

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03 Jun 2015, 14:25
2
1
This is a "weaken the plan" type weaken question. In plan-style critical reasoning questions, view the steps of the plan as the premises and the ultimate objective of the plan as the conclusion. Here the step is to increase the interest rate charged on outstanding balances, and the goal is to increase profits. Because we are weakening, we are looking to insert another premise that would attack the gap between this premise and conclusion.

Answer choice A is out of scope and irrelevant. We are focused only on this one company, not others.

Answer choice B is a common trap answer to these style questions. The presence of a better plan does not weaken the existing plan; it is out of scope.

Answer choice C is also out of scope. Discussing how the problem may resolve itself does nothing to attack the gap between premise and conclusion in this plan.

Answer choice D is strengthening the argument, and is thus a strengthen trap answer to a weaken question.

Answer choice E nails it and is thus correct. If the increased APR will worsen the default situation (which is what the CEO is trying to account for by increasing the APR), then it is very possible that the goal of increasing profits will not be accomplished. The company may actually end up decreasing profits even further, or remaining steady.

I hope this helps!
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Brandon
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Senior Manager
Joined: 21 May 2015
Posts: 259
Concentration: Operations, Strategy
GMAT 1: 750 Q50 V41
Re: CEO: Over the past several years, we have more than doubled our revenu [#permalink]

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03 Jun 2015, 23:17
VeritasPrepBrandon wrote:
This is a "weaken the plan" type weaken question. In plan-style critical reasoning questions, view the steps of the plan as the premises and the ultimate objective of the plan as the conclusion. Here the step is to increase the interest rate charged on outstanding balances, and the goal is to increase profits. Because we are weakening, we are looking to insert another premise that would attack the gap between this premise and conclusion.

Answer choice A is out of scope and irrelevant. We are focused only on this one company, not others.

Answer choice B is a common trap answer to these style questions. The presence of a better plan does not weaken the existing plan; it is out of scope.

Answer choice C is also out of scope. Discussing how the problem may resolve itself does nothing to attack the gap between premise and conclusion in this plan.

Answer choice D is strengthening the argument, and is thus a strengthen trap answer to a weaken question.

Answer choice E nails it and is thus correct. If the increased APR will worsen the default situation (which is what the CEO is trying to account for by increasing the APR), then it is very possible that the goal of increasing profits will not be accomplished. The company may actually end up decreasing profits even further, or remaining steady.

I hope this helps!

Great!! Thanks for the explanation
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Apoorv

I realize that i cannot change the world....But i can play a part

Intern
Joined: 22 Aug 2014
Posts: 45
Re: CEO: Over the past several years, we have more than doubled our revenu [#permalink]

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04 Dec 2015, 05:02
Can you pl. clarify why option A is out of scope? You said that since we are concentrating on one company at hand, thinking of others is just lrrelevant. Whatif it is our systemic or national problem?
Ok, it is about many other companies, not all. So, we can't say this as systemic problem. I am trying to fit option A through replacing 'many others' by 'all'. What if, it were the same problem of almost every company? in this case, can we think option A a candidate?
In addition, I have another explanation regarding option C. The option C tries to tempt us to present a reason why the default rate is higher now and how it will be reduced overtime after unemployment improves. Whatif unemployment solves, but ppl don't change their habit? So, we need another assumption that reduction of unemployment rate will reduce default rate. Any answer choice requiring further assumption or condition to make the argument works is wrong! If Increase of A causes increase of B, who guarantees that reduction of A also causes reduction of B!
Pl. justify what I have said so far.
Manager
Joined: 30 Apr 2013
Posts: 90
Re: CEO: Over the past several years, we have more than doubled our revenu [#permalink]

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20 Nov 2017, 21:48
Why not B the answer? Regarding option A - Its is out of scope since we are not bothered about other industries. So in the same way - Option E - talks about APR rate in credit card industry or trend in credit card industry, so why are we bothered about credit card industry? It could be the case that APR rate in credit card industry is already high and increase in APR could something which people cant afford payback at any cost - I feel we cant compare.

Whats the flaw in my thinking? can someone explain this please
Senior Manager
Joined: 09 Mar 2017
Posts: 443
Location: India
Concentration: Marketing, Organizational Behavior
WE: Information Technology (Computer Software)
CEO: Over the past several years, we have more than doubled our revenu [#permalink]

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20 Nov 2017, 23:49
santro789 wrote:
Why not B the answer? Regarding option A - Its is out of scope since we are not bothered about other industries. So in the same way - Option E - talks about APR rate in credit card industry or trend in credit card industry, so why are we bothered about credit card industry? It could be the case that APR rate in credit card industry is already high and increase in APR could something which people cant afford payback at any cost - I feel we cant compare.

Whats the flaw in my thinking? can someone explain this please

In B , an alternate solution is given to attain profit. We are asked to undermine that the solution of increasing APR will increase the profit. B is hitting the wrong target.
E is correct because no other option is even close to the aim. Even though E introduces a new information by mentioning credit card division, it still does a neat job by explaining why increasing APR will fail to increase the profit.
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CEO: Over the past several years, we have more than doubled our revenu   [#permalink] 20 Nov 2017, 23:49
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