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# Companies considering new cost-cutting manufacturing

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Director
Joined: 15 Aug 2005
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Location: Singapore
Companies considering new cost-cutting manufacturing [#permalink]

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12 Sep 2005, 18:53
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0% (00:00) correct 0% (00:00) wrong based on 6 sessions

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Companies considering new cost-cutting manufacturing processes often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.

Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?

(A) The costs of materials required by the new process might not be known with certainty.
(B) In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
(C) Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
(D) Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
(E) The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.
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Cheers, Rahul.

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Intern
Joined: 01 Jul 2005
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12 Sep 2005, 19:46
Most serious disadvantage - Competitors taking the market share.

I'll go with D.

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Director
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12 Sep 2005, 20:10
(D) says that companies' assumption that "selling price" is constant is wrong. Thus best answer.

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SVP
Joined: 28 May 2005
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12 Sep 2005, 20:34
But D in fact strengthens the conclusion, because it is taking about new manufacturing company.

my answer choice should be A.
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hey ya......

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Current Student
Joined: 29 Jan 2005
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13 Sep 2005, 00:11
Good question. I'm curious as to where you sourced it Rahul? Definately not Kaplan or ETS style. Seeing how the ambiguous might is used in nearly all the answer choices, I would have to go with D. It basically forces companies to adopt the new cost cutting measures if they intend to stay competitive and maintain market share.

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Senior Manager
Joined: 13 Jan 2005
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16 Sep 2005, 11:16
A for me.

IMO with D - by not implementing the new mfg process they can potentially loose market share. Hence they can use this data to decide if the new mfg process is financially beneficial for them.

GA

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Manager
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16 Sep 2005, 11:34
I dont know whatz wrong with me but I feel C shud be the answer.
Can some one disprove C as a valid option???

Krishna

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Manager
Joined: 26 Jun 2005
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16 Sep 2005, 15:21
Head is spinning on this one...I would choose C because I think it shows that by keeping costs, etc. constant, a person may not realize what the true benefit/detriment of the new process is.
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Chet

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Manager
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16 Sep 2005, 15:56
Must be D. C is not correct as you could still clearly evalute the benefit of a process even if it takes a long time to turn a profit. If I offer to sell you the Golden gate for 100 billion dollars, you could still evaluate the financial benefit even if you it would take 50 years to in toll-collecting to cover the initial investment.

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Director
Joined: 15 Aug 2005
Posts: 793

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16 Sep 2005, 18:09
OA is D guys!

Im still totally lost on this one! Can someone who chose D explain the logic for selecting D and also the logic for rejecting the others? Thanks!
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Cheers, Rahul.

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16 Sep 2005, 18:09
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# Companies considering new cost-cutting manufacturing

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