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Manufacturing plants in Arundia have recently been acquired in

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Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 28 May 2017, 18:46
5
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00:00
A
B
C
D
E

Difficulty:

  25% (medium)

Question Stats:

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GMAT® Official Guide 2018

Practice Question
Question No.: CR 627
Page: 532

Manufacturing plants in Arundia have recently been acquired in substantial numbers by investors from abroad. Arundian politicians are proposing legislative action to stop such investment, justifying the proposal by arguing that foreign investors, opportunistically exploiting a recent fall in the value of the Arundian currency, were able to buy Arundian assets at less than their true value.

Which of the following, if true, casts the most serious doubt on the adequacy of the Arundian politicians' justification for the proposed legislation?


(A) The Arundian government originally welcomed the fall in the value of the Arundian currency because the fall made Arundian exports more competitive on international markets

(B) Foreign investors who acquired manufacturing plants generally did so with no intention of keeping and running those plants over the long term.

(C) Without the recent fall in the value of the Arundian currency, many of the Arundian assets bought by foreign investors would have been beyond the financial reach of those investors.

(D) In Concordia, a country broadly similar to Arundia, the share of manufacturing assets that is foreign-controlled is 60 percent higher than it is in Arundia.

(E) The true value of an investment is determined by the value of the profits from it, and the low value of the Arundian currency has depressed the value of any profits earned by foreign investors from Arundian assets.

Arundian Manufacturing

Step 1: Identify the Question

The question asks which answer casts the most serious doubt, so this is a Weaken the Argument question.

Step 2: Deconstruct the Argument

Goal: stop for. invest

Recent fall currency

Bought assets < true value

Step 3: Pause and State the Goal

On Weaken questions, the goal is to find an answer that makes the conclusion less likely. In this problem, you are specifically asked to undermine the justification for the proposed legislation. Review the argument if needed to locate this justification: foreign investors bought assets at less than their true value.

Step 4: Work from Wrong to Right

(A) This answer provides increased exports as an advantage of the fall in value of the currency. It does not, however, directly address the issue of whether assets were bought below their true value.

(B) There could be other issues if the investors plan to sell in the short-term, but they would be unrelated to the justification of the politicians Plans to sell in the short-term might even suggest that assets are undervalued (so investors are trying to sell quickly to make a profit) and thus support the politicians’ argument.

(C) Foreign investors presumably have most of their wealth in other currencies; when the relative value of Arundian currency falls these investors may be able to afford and then buy more assets in Arundia. This answer suggests just such a relationship, and potentially supports the politicians’ claim to the extent that the prices paid were below fair value.

(D) It is not clear how the situation in Concordia relates to Arundia. On one hand, Arundian politicians could be concerned about a lot more foreign investment. On the other hand, Concordia might be seen as an example that foreign investment does not harm a country. In either case, this information does not directly relate to the justification for the new legislation in the argument (i.e. whether the assets bought by foreign investors were bought below true value).

(E) CORRECT. This answer implies that the politicians may have been misinterpreting true value. If true value is based on the profits, the decrease in value of the currency would have decreased these profits, thus lowering the true value of the assets. Thus, investors may have paid a fair price, undermining the justification of the politicians.

Argument Evaluation

Situation After a recent fall in the value of Arundian currency, foreign investors have been acquiring many Arundian manufacturing plants. Arundian politicians are proposing legislation to stop such investment.

Reasoning What would most undermine the Arundian politicians' justification for the proposed legislation? The politicians are justifying their proposal by claiming that foreign investors have been exploiting the fall in the currency's value by buying Arundian assets at less than their true value (whatever that means). Any evidence that their claim is false or meaningless would undermine their justification for the proposal, as would any evidence that the claim, even if true, does not provide a good reason to stop the foreign investments.

(A) This suggests that the foreign investors got a good deal on the manufacturing plants, since it provides evidence that those plants will now be more competitive and profitable. So, if anything, it supports the politicians' justification for their proposal rather than undermining it.

(B) This suggests that the foreign investors generally believe the manufacturing plants are undervalued, and intend to sell them at a profit as soon as the currency rises enough. So, it supports the politicians' justification for their proposal rather than undermining it.

(C) This suggests that the recent fall in the currency's value made Arundian assets cost less than usual for foreign investors, thus arguably allowing the investors to buy the assets at less than their true value. So, if anything, it supports the politicians' justification for their proposal rather than undermining it.

(D) The Arundian politicians might consider the example of Concordia to be a warning of the disaster that could befall Arundia unless the legislation is enacted. So, the situation in Concordia might be cited as support for the politicians' justification of their proposal.

(E) Correct. This implies that the fall in the Arundian currency's value has reduced the true value of Arundian manufacturing plants and any profits they may make, so it undermines the politicians' claim that the foreign investors exploited the fall in the currency's value to acquire the plants for less than their true value.

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Re: Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 28 May 2017, 20:45
IMO E.

E is related to the value of the assets.

Other choices are opposite or irrelevant.
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Re: Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 29 Jun 2017, 18:37
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E for me

a,c,d- out of scope
b- did not discussed the reasoning of the argument

e- if profits decide the real cost of investment then foreign investors are at loss, not in profit as stated by politician,
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Re: Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 30 Jun 2017, 21:47
I do not understand this argument. is this from Og or GMAT PREP
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Re: Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 30 Jun 2017, 23:29
thangvietnam wrote:
I do not understand this argument. is this from Og or GMAT PREP


The argument largely asks not how the judges decision is wrong, but the premise on which the decision is based is wrong.
The premise relates to opportunistic investment by Foreign investors to earn more profits (implied in argument) out of a devalued currency. Option E is correct in this context, since it negates the judges' premise by saying profits of foreign investors actually fall, and thus they do not benefit out of investing in economy with devalued currency.
Option A tries to trick into the matter of devalued currency, but is out of context.
Option C strengthens the premise of judges.
Option B and D are also out of context.

Hope this helps.
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Re: Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 02 Jul 2017, 02:05
Hi Experts,
I narrowed down to B and E, but could not eliminate B

Conclusion: Arundian politicians propose to stop foreign investment

Premise: how to politicians justify above statement, They do so as follows:
Recently value of arundian currency fell -> this led foreign investors to buy assets at lower value.

Goal: To show another reason that why foreign investors were able to buy assets at lower value had they not exploited the fall in currency values.

Pre-thinking: Say foreign investors intend to have plants running over longer period to maximize the profits earned from them, then justification of politicians is weakened.
Option B matches this line of reasoning.

Option E: Here we introduced another linkage which again disproved politician's judgement:
Recently value of arundian currency fell -> have led to decrease in profits earned by foreign investors -> leading to true value deterioration of investment.

Let me know your views.
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Re: Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 12 Jul 2017, 08:58
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adkikani wrote:
Hi Experts,
I narrowed down to B and E, but could not eliminate B

Conclusion: Arundian politicians propose to stop foreign investment

Premise: how to politicians justify above statement, They do so as follows:
Recently value of arundian currency fell -> this led foreign investors to buy assets at lower value.

Goal: To show another reason that why foreign investors were able to buy assets at lower value had they not exploited the fall in currency values.

Pre-thinking: Say foreign investors intend to have plants running over longer period to maximize the profits earned from them, then justification of politicians is weakened.
Option B matches this line of reasoning.

Option E: Here we introduced another linkage which again disproved politician's judgement:
Recently value of arundian currency fell -> have led to decrease in profits earned by foreign investors -> leading to true value deterioration of investment.

Let me know your views.


Hi,

You can take a look at my comments while waiting answers from experts.

First, in my opinion, the goal you identify might be not accurate, thus leading to your favoring option (B)
Instead, the stated goal should be: proving that investors do not take advantage from "buying Arundian assets at less than their true value."
Accordingly, pre-thinking assumption could be the investors don't buy Arundian assets at less than their true value. How could that be true? Maybe true value of these assets is already as low as their selling price!

Option B actually talks nothing relevant to what we've just discussed. Furthermore, "keeping and running those plants over the long term" doesn't necessarily result in an increase in profits. In reality, long-term operation brings about both opportunities and risks. Therefore, don't assume that it will lead to positive results only.

Option E proves why true value of an investment is actually lower than expected, explaining why investors don't take any advantage from the difference in selling price and true value!

Should u have any question, feel free to ask me. :)
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Re: Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 13 Jul 2017, 19:43
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adkikani wrote:
Hi Experts,
I narrowed down to B and E, but could not eliminate B

Conclusion: Arundian politicians propose to stop foreign investment

Premise: how to politicians justify above statement, They do so as follows:
Recently value of arundian currency fell -> this led foreign investors to buy assets at lower value.

Goal: To show another reason that why foreign investors were able to buy assets at lower value had they not exploited the fall in currency values.

Pre-thinking: Say foreign investors intend to have plants running over longer period to maximize the profits earned from them, then justification of politicians is weakened.
Option B matches this line of reasoning.

Option E: Here we introduced another linkage which again disproved politician's judgement:
Recently value of arundian currency fell -> have led to decrease in profits earned by foreign investors -> leading to true value deterioration of investment.

Let me know your views.


The Arundian politicians' justification is that "foreign investors, opportunistically exploiting a recent fall in the value of the Arundian currency, were able to buy Arundian assets at less than their true value."

Quote:
B.Foreign investors who acquired manufacturing plants generally did so with no intention of keeping and running those plants over the long term.

Sure, if the investors wanted to keep and run the plants over the long term, they might eventually sell the plants for a profit, but that strategy would not entail "opportunistically exploiting a recent fall in the value of the Arundian currency."

However, if the investors had NO intention of keeping and running those plants, then the investors might just buy the plants while prices are down, wait for prices to go back up, and sell the plants back for a profit. That strategy WOULD involve "opportunistically exploiting a recent fall in the value of the Arundian currency." Thus, choice (B) actually supports the politicians' justification and does not weaken it.

Hopefully that helps eliminate (B), but let us know if it's still unclear!
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Re: Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 30 Jul 2017, 07:20
ChiranjeevSingh

Please validate the reasoning.

Manufacturing plants in Arundia have recently been acquired in substantial numbers by investors from abroad. Arundian politicians are proposing legislative action to stop such investment, justifying the proposal by arguing that foreign investors, opportunistically exploiting a recent fall in the value of the Arundian currency, were able to buy Arundian assets at less than their true value.

Which of the following, if true, casts the most serious doubt on the adequacy of the Arundian politicians' justification for the proposed legislation?
A. The Arundian government originally welcomed the fall in the value of the Arundian currency because the fall made Arundian exports more competitive on international markets (Govt might have welcomed the fall in currency "ORIGINALLY", but what about now !)
B.Foreign investors who acquired manufacturing plants generally did so with no intention of keeping and running those plants over the long term. (Supports the argument- Intention of Trading )
C.Without the recent fall in the value of t
he Arundian currency, many of the Arundian assets bought by foreign investors would have been beyond the financial reach of those investors. (Support the argument)
D. In Concordia, a country broadly similar to Arundia , the share of manufacturing assets that is foreign - controlled is 60 percent higher than it is in Arundia. (Out of scope and irrelevant)
E. The true value of an investment is determined by the value of the profits from it , and the low value of the Arundian currency has depressed the value of any profits earned by foreign investors from Arundian assets. (If true value will remain depressed, then investors would not get benefited )
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Re: Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 07 Sep 2018, 10:18
demonhunter wrote:
IMO E.

E is related to the value of the assets.

Other choices are opposite or irrelevant.


Agree!
Quote:
Option E: The true value of an investment is determined by the value of the profits from it, and the low value of the Arundian currency has depressed the value of any profits earned by foreign investors from Arundian assets.
E not only is related to the value of the assets but it also details how the true value of an asset is calculated, and how the depressed value of currency has taken away the charm from Arundian.
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Re: Manufacturing plants in Arundia have recently been acquired in  [#permalink]

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New post 06 Oct 2018, 04:26
Shivikaa04 wrote:
Why is choice A wrong ?


Hi,

'(A) The Arundian government originally welcomed the fall in the value of the Arundian currency because the fall made Arundian exports more competitive on international markets'

This option doesn't talk anything about the foreign investment. It is concerned with the exports and hence is irrelevant to the argument.

Hope this helps!
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Re: Manufacturing plants in Arundia have recently been acquired in &nbs [#permalink] 06 Oct 2018, 04:26
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