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In the United States profits from sales of Grainco’s biggest selling p

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In the United States profits from sales of Grainco’s biggest selling p [#permalink]

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New post 25 Jul 2017, 11:58
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Question Stats:

88% (01:00) correct 12% (01:17) wrong based on 146 sessions

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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.
Spoiler: OA

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Re: In the United States profits from sales of Grainco’s biggest selling p [#permalink]

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New post 25 Jul 2017, 12:11
mihir0710 wrote:
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.


Sales down, but Stock Prices are up!
This will happen only if sales are down for a product that don't contribute a large percentage to the companies revenues + another product has had tremendous growth keeping the markets happy.

A - Doesn't help the paradox i.e. drop in sales but an increase in stock price.
B - This would have an adverse effect on production, which might explain some part of the sales drop, but it still doesn't explain why the stocks went up.
C - Oatmeals increased dramatically. This is it. Keep!
D - Irrelevant. OUT.
E - Irrelevant, and if anything, this would adversely affect the company's image in the market. OUT.

C is the answer.
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Re: In the United States profits from sales of Grainco’s biggest selling p [#permalink]

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New post 25 Jul 2017, 15:45
mihir0710 wrote:
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.


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.
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Re: In the United States profits from sales of Grainco’s biggest selling p [#permalink]

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New post 25 Jul 2017, 19:07
C should be the answer.
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.

It says that the value of a share of Grainco stock rose by over 20 percent because of the sales of the oatmeal.
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Re: In the United States profits from sales of Grainco’s biggest selling p [#permalink]

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New post 15 Aug 2017, 12:57
1
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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Re: In the United States profits from sales of Grainco’s biggest selling p [#permalink]

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New post 31 Jan 2018, 15:22
mihir0710 wrote:
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.


Hi, first, I can understand how C is the answer. The question is all about the basic knowledge in finance: value vs stock price.
Nevertheless, if the question is from Magoosh, the question should not be posted on GMAC paper test category.
Re: In the United States profits from sales of Grainco’s biggest selling p   [#permalink] 31 Jan 2018, 15:22
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