In the United States profits from sales of Grainco’s biggest selling product, cornflakes, have dropped by 30 percent over the last 3 years. During this same time the value of a share of Grainco stock rose by over 20 percent. This is puzzling because the value of a stock usually decreases when a company’s sales decrease.

Which of the following, if true during the last 3 years, most helps to explain why the value of a share of Grainco stock moved in the way that it did?

(A) Severe drought in the Midwest destroyed a large percentage of the corn crop, forcing Grainco to buy less corn.

(B) Grainco closed a food processing plant in a locality that offered cheap labor and low taxes.

(C) Profits from sales of Grainco oatmeal, which account for a large part of Grainco’s total sales and profits, increased dramatically in both the foreign and domestic markets.

(D) Grainco employees formed a union that helped them get higher salaries and increased medical benefits.

(E) Several articles in prominent business publications listed Grainco as a company that has poor management.
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Compilation of Blogs by Mike Mcgarry - Magoosh

Boil the passage down:

+Profits from sales of biggest product have gone down. Bad news

+Normally, bad news would lead to decrease in stock price.

+ But, this time stock price went up by over 20%.

Explain --> Need something else OUT SIDE THE SCOPE OF THE PASSAGE. Because we can NOT explain the discrepancy with information already given in the passage.

A. DOES NOT HELP EXPLAIN

Buying less --> Probably selling less --> Possibly less profits <-- already given in the passage.

B. IMPOSSIBLE TO EXPLAIN

Bad news again --> stock price would go down. If B were true, it would make more discrepancy.

C. NEW INFORMATION OUT SIDE THE SCOPE OF THE PASSAGE THAT HELPS EXPLAIN.

Oatmeal:

+ accounts for a large part of total sales and profits.

+ had increase in profits from sales.

--> Good news --> stock market behaved accordingly --> stock price went up regardless of bad news from profits from sales of cornflakes.

D. IMPOSSIBLE TO EXPLAIN

Bad news again --> Like B

E. IMPOSSIBLE TO EXPLAIN

Bad news again --> Like B

IMO C is correct.

In the United States profits from sales of Grainco’s biggest selling product, cornflakes, have dropped by 30 percent over the last 3 years. During this same time the value of a share of Grainco stock rose by over 20 percent. This is puzzling because the value of a stock usually decreases when a company’s sales decrease.

Type - explain
Boil it down - Maybe GrainCo's profit from other products increase significantly . Maybe the overall sales of the cornflakes might have increased but the profit margin decreased

(A) Severe drought in the Midwest destroyed a large percentage of the corn crop, forcing Grainco to buy less corn. - Irrelevant
(B) Grainco closed a food processing plant in a locality that offered cheap labor and low taxes. - Incorrect - This only explains why profit might have dropped
(C) Profits from sales of Grainco oatmeal, which account for a large part of Grainco’s total sales and profits, increased dramatically in both the foreign and domestic markets. - Correct
(D) Grainco employees formed a union that helped them get higher salaries and increased medical benefits. - Irrelevant - employee benefits does not explain correlation between profits and stock market price fluctuations
(E) Several articles in prominent business publications listed Grainco as a company that has poor management. - Irrelevant

Answer C
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