GMAT Question of the Day - Daily to your Mailbox; hard ones only

It is currently 14 Oct 2019, 15:57

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

Financing for a large construction project was provided by a group of

  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
TAGS:

Hide Tags

Find Similar Topics 
Senior RC Moderator
User avatar
V
Joined: 02 Nov 2016
Posts: 4074
GPA: 3.39
Financing for a large construction project was provided by a group of  [#permalink]

Show Tags

New post Updated on: 05 Nov 2018, 11:30
1
4
00:00
A
B
C
D
E

Difficulty:

  15% (low)

Question Stats:

81% (01:45) correct 19% (01:48) wrong based on 182 sessions

HideShow timer Statistics

Financing for a large construction project was provided by a group of banks. When the money was gone before the project was completed, the banks approved additional loans. Now, with funds used up again and completion still not at hand, the banks refuse to extend further loans, although without those loans, the project is doomed.

Which of the following, if true, best explains why the bank’s current reaction is different from their reaction in the previous instance of depletion of funds?

A. The banks have reassessed the income potential of the completed project and have concluded that total income generable would be less than total interest due on the old plus the needed new loans.
B. The banks have identified several other projects that offer faster repayment of the principal if loans are approved now to get those projects started.
C The banks had agreed with the borrowers that the construction loans would be secured by the completed project.
D. The cost overruns were largely due to unforeseeable problems that arose in the most difficult phase of the construction work.
E. The project stimulated the development and refinement of several new construction techniques, which will make it easier and cheaper to carry out similar projects in the future.

Source: Experts Global
Difficulty Level: 600

_________________

Originally posted by SajjadAhmad on 25 Oct 2018, 06:11.
Last edited by SajjadAhmad on 05 Nov 2018, 11:30, edited 1 time in total.
examPAL Representative
User avatar
P
Joined: 07 Dec 2017
Posts: 1140
Re: Financing for a large construction project was provided by a group of  [#permalink]

Show Tags

New post 25 Oct 2018, 06:54
1
The answer is B.

Although A is also tempting, it is not the answer: what's relevant now is if the income of the project will be enough to repay the current loan (plus interest). That's what will affect whether the bank makes this new loan - not whether it can repay old loans. (especially if not providing the new loan may mean that the old one won't be repaid either...) in other words, what's relevant is if giving a new loan will increase or decrease the amount that will be repaid, and if this repayment is the best thing the bank can do with its money. A doesn't tell us this... insufficient.
B, on the other hand, tells us the most relevant thing: the bank will get more for its money in a different project. If this is the case, they have no reason to give the loan. This is the answer!
_________________
Senior Manager
Senior Manager
User avatar
G
Joined: 15 Feb 2017
Posts: 299
Re: Financing for a large construction project was provided by a group of  [#permalink]

Show Tags

New post 25 Oct 2018, 07:53
1
Financing for a large construction project was provided by a group of banks. When the money was gone before the project was completed, the banks approved additional loans. Now, with funds used up again and completion still not at hand, the banks refuse to extend further loans, although without those loans, the project is doomed.

Which of the following, if true, best explains why the bank’s current reaction is different from their reaction in the previous instance of depletion of funds?

A. The banks have reassessed the income potential of the completed project and have concluded that total income generable would be less than total interest due on the old plus the needed new loans.(Contender)
B. The banks have identified several other projects that offer faster repayment of the principal if loans are approved now to get those projects started.(what if banks have identified other projects with early repayments,they may finance them along with this current project)
C The banks had agreed with the borrowers that the construction loans would be secured by the completed project.(if loans are secured then banks should finance the project)
D. The cost overruns were largely due to unforeseeable problems that arose in the most difficult phase of the construction work.(it gives the reason for increase in cost not why banks stopped financing the project)
E. The project stimulated the development and refinement of several new construction techniques, which will make it easier and cheaper to carry out similar projects in the future.(relevant for future projects)

I will go with choice A


Thanks




Sent from my Lenovo K33a42 using GMAT Club Forum mobile app
_________________
IMPOSSIBLE IS JUST AN OPINION
Board of Directors
User avatar
D
Status: QA & VA Forum Moderator
Joined: 11 Jun 2011
Posts: 4765
Location: India
GPA: 3.5
WE: Business Development (Commercial Banking)
GMAT ToolKit User
Re: Financing for a large construction project was provided by a group of  [#permalink]

Show Tags

New post 25 Oct 2018, 08:08
1
+1 for (A)

The banks have reassessed the income potential of the completed project and have concluded that total income generable would be less than total interest due on the old plus the needed new loans.

If we negate this statement we have

The banks have reassessed the income potential of the completed project and have concluded that total income generable would be more than/equal to the total interest due on the old plus the needed new loans.

In this case the Banks will not have any issue in advancing the Borrower...

Thus, IMHO answer should be (A)
_________________
Thanks and Regards

Abhishek....

PLEASE FOLLOW THE RULES FOR POSTING IN QA AND VA FORUM AND USE SEARCH FUNCTION BEFORE POSTING NEW QUESTIONS

How to use Search Function in GMAT Club | Rules for Posting in QA forum | Writing Mathematical Formulas |Rules for Posting in VA forum | Request Expert's Reply ( VA Forum Only )
Senior Manager
Senior Manager
User avatar
G
Joined: 15 Feb 2017
Posts: 299
Re: Financing for a large construction project was provided by a group of  [#permalink]

Show Tags

New post 25 Oct 2018, 08:19
banks have identified other projects with faster repayment that's why they have stopped financing the current project.but, if banks do not extend financial support to current project then this current project will doom, and the amount invested so far by banks will also get vanished.

Sent from my Lenovo K33a42 using GMAT Club Forum mobile app
_________________
IMPOSSIBLE IS JUST AN OPINION
Manager
Manager
User avatar
S
Joined: 21 Jul 2018
Posts: 186
Reviews Badge
Re: Financing for a large construction project was provided by a group of  [#permalink]

Show Tags

New post 25 Oct 2018, 11:13
DavidTutorexamPAL wrote:
The answer is B.

Although A is also tempting, it is not the answer: what's relevant now is if the income of the project will be enough to repay the current loan (plus interest). That's what will affect whether the bank makes this new loan - not whether it can repay old loans. (especially if not providing the new loan may mean that the old one won't be repaid either...) in other words, what's relevant is if giving a new loan will increase or decrease the amount that will be repaid, and if this repayment is the best thing the bank can do with its money. A doesn't tell us this... insufficient.
B, on the other hand, tells us the most relevant thing: the bank will get more for its money in a different project. If this is the case, they have no reason to give the loan. This is the answer!


DavidTutorexamPAL I feel B should not be OA as it doesn't say at all that why they can not fund 2 different projects (old and new), they will get more money from new project so they will invest there but they also need to recover money from old project as it will fail if they will not approve new loan and bank will not get return of loan they gave in past.

Could you please clear my above doubt.

Thanks.
_________________
______________________________
Press +1 Kudos if my post helped you a little and help me to ulcock the tests ;) Wish you all success

I'd appreciate learning about the grammatical errors in my posts


Please let me know if I'm wrong somewhere and help me to learn :-)
Manager
Manager
User avatar
B
Joined: 26 Sep 2017
Posts: 95
Re: Financing for a large construction project was provided by a group of  [#permalink]

Show Tags

New post 25 Oct 2018, 12:42
DavidTutorexamPAL wrote:
The answer is B.

Although A is also tempting, it is not the answer: what's relevant now is if the income of the project will be enough to repay the current loan (plus interest). That's what will affect whether the bank makes this new loan - not whether it can repay old loans. (especially if not providing the new loan may mean that the old one won't be repaid either...) in other words, what's relevant is if giving a new loan will increase or decrease the amount that will be repaid, and if this repayment is the best thing the bank can do with its money. A doesn't tell us this... insufficient.
B, on the other hand, tells us the most relevant thing: the bank will get more for its money in a different project. If this is the case, they have no reason to give the loan. This is the answer!





Does not B says that banks have limited funds means that banks will able to fund only one project in current situation, this is odd w.r.t banks so i think A is winner over B.
Manager
Manager
avatar
B
Joined: 12 Dec 2011
Posts: 59
Location: United States (NY)
GMAT 1: 720 Q49 V38
GPA: 3.17
WE: Other (Accounting)
Reviews Badge
Re: Financing for a large construction project was provided by a group of  [#permalink]

Show Tags

New post 25 Oct 2018, 15:47
B is actually a trap. Fast repayment of loan doesn’t necessarily tell you the desired interest is included. If the fast repayment of loan consists of mainly loan principal balance then the bank will have very minimum interest income. Why will the bank care about the minimum interest then when B doesn’t even tell you what went wrong in the old projects.

Posted from my mobile device
Intern
Intern
avatar
B
Joined: 19 Apr 2017
Posts: 32
Location: India
WE: Management Consulting (Consulting)
Re: Financing for a large construction project was provided by a group of  [#permalink]

Show Tags

New post 31 Oct 2018, 23:01
Argument - The construction project overshot the budget. Bank paid once, but refuses to pay any more.

Couple of reasons for the change in stance may include - some policy that says can't pay more than once, a possibility of finding out budget mismanagement, or something that points to a bad investment for the bank.

A - The only option that explains from the bank's point of view why it may not be feasible for it to continue to pay in excess of the initially approved loan anymore.
B - is tempting, but not a rational explanation as to why it is okay for the bank to stop payments midway.
C - provides information about a clause in the loan agreement, unrelated to bank's decision.
D - explains the reasons behind cost overrun, again unrelated.
E - talks about construction techniques, totally unrelated.
GMAT Club Bot
Re: Financing for a large construction project was provided by a group of   [#permalink] 31 Oct 2018, 23:01
Display posts from previous: Sort by

Financing for a large construction project was provided by a group of

  new topic post reply Question banks Downloads My Bookmarks Reviews Important topics  





Powered by phpBB © phpBB Group | Emoji artwork provided by EmojiOne