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# Over the past 5 years, Company X has posted double-digit

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Manager
Joined: 26 Aug 2010
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Location: India
Over the past 5 years, Company X has posted double-digit  [#permalink]

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18 Oct 2010, 21:05
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64% (01:21) correct 36% (01:34) wrong based on 1227 sessions

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Over the past 5 years, Company X has posted double-digit growth in annual revenues, combined with a substantial improvement in operating margins. Since this growth is likely to persist in the future, the stock of Company X will soon experience dramatic appreciation.

The argument above is based on which of the following assumptions?

A)Company X has a large market share in its industry.
B)Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.
C)The growth of Company X is likely to persist in the future.
D)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
E) The stock of Company X will outperform other stocks in the same industry.

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Over the past 5 years, Company X has posted double-digit  [#permalink]

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26 Nov 2010, 03:09
4
6
Over the past 5 years, Company X has posted double-digit growth in annual revenues, combined with a substantial improvement in operating margins. Since this growth is likely to persist in the future, the stock of Company X will soon experience dramatic appreciation.

The argument above is based on which of the following assumptions?
a) Company X has a large market share in its industry.
b)Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.
c)The growth of Company X is likely to persist in the future.
d)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
e)The stock of Company X will outperform other stocks in the same industry.
##### General Discussion
Manager
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Posts: 140
Re: Assumption CR (500-600 level)  [#permalink]

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18 Oct 2010, 21:41
3
1
Use POE.

A)Company X has a large market share in its industry.
Irrelevant. Does not tell us how the value of the company's stocks will appreciate.

B)Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.
This tells us that the Sales increased when the operating margins improved. Does not say anything about stock value.

C)The growth of Company X is likely to persist in the future.
Restatement. Does not say anything about stock value.

E) The stock of Company X will outperform other stocks in the same industry.
Comparison with stocks of other companies is irrelevant.

D)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
Correct answer. Author is assuming that the price of the stock should be/will be higher due to the growth in revenues and improvement in operating margins.
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Re: Assumption CR (500-600 level)  [#permalink]

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09 Nov 2010, 14:30
Isn't it too hard to assume D....any better explanation?
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Re: Assumption CR (500-600 level)  [#permalink]

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10 Nov 2010, 05:43
1
amma4u wrote:
Isn't it too hard to assume D....any better explanation?

Negate D.

The current price of the stock of Company X [strike]does not[/strike] fully reflects the promising growth prospects of the firm.

So it means that the growth and increasing OPM has already been factored in. So no more scope of growth in share value.

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Re: Assumption CR (500-600 level)  [#permalink]

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10 Nov 2010, 11:15
Agree with yossarian84. Negation works best here.
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Re: over the last 5 years  [#permalink]

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26 Nov 2010, 11:56
6
2
anilnandyala wrote:
Over the past 5 years, Company X has posted double-digit growth in annual revenues, combined with a substantial improvement in operating margins. Since this growth is likely to persist in the future, the stock of Company X will soon experience dramatic appreciation.

The argument above is based on which of the following assumptions?
a) Company X has a large market share in its industry.
b)Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.
c)The growth of Company X is likely to persist in the future.
d)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
e)The stock of Company X will outperform other stocks in the same industry.

An assumption is the missing link between the evidence and the conclusion. On assumption questions, we want to:

1) Paraphrase the conclusion;
2) summarize the evidence; and
3) predict what's required to connect the two.

Deconstructing this argument, we see that the author's conclusion is a prediction: the stock is about to skyrocket. The evidence that supposedly supports this prediction is that the company has had great growth over the last 5 years and that the growth is likely to continue.

We ask ourselves: "selves, what could the author be ignoring that would prevent the prediction from coming true?"

We answer ourselves: "selves, the author hasn't told us anything about the stock's previous performance - we don't know if its current value already reflects the previous growth and/or speculation of future growth."

Finally, we predict the answer: the author is assuming that the current stock price does NOT take into account the company's growth/potential for growth.

Armed with that prediction, we attack the choices and quickly and confidently select (D).

On a CAT, we'd barely even look at the remaining choices (when you have a prediction, the only question you ask is "does this match" - if a choice doesn't match, fly right by it). However, when the CAT is over, you always want to thoroughly review the questions, so let's slip into "review mode" for a moment.

Many people are tempted by choices like "c)The growth of Company X is likely to persist in the future." Here's something important to remember: an assumption is an unstated piece of evidence. Since the stimulus already tells us that (C) is true, the author doesn't need to assume it.

Our takeaway: we never question the evidence that's explicitly presented - the vulnerable parts of the argument are the assumptions, which the author didn't bother to write down on the page.
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Re: over the last 5 years  [#permalink]

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30 Nov 2010, 10:36
1
Over the past 5 years, Company X has posted double-digit growth in annual revenues, combined with a substantial improvement in operating margins. Since this growth is likely to persist in the future, the stock of Company X will soon experience dramatic appreciation.

The argument above is based on which of the following assumptions?
a) Company X has a large market share in its industry.
b)Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.
c)The growth of Company X is likely to persist in the future.
d)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
e)The stock of Company X will outperform other stocks in the same industry.
-------------------------------------------------------------------------------------------------------------
well to begin with this question is worthless , it requires you to know the terminology( growth company vs growth stock) ..!
k..coming back to the gmat world since this is an assumption question just use assumption negation technique..
a) company X does not have a large market share---don't give a rat's a**, move on..
b) since the whole stem talks abt a 5 yr span and the future it is irrelevent to talk outside tht time period
c) the growth of the company is not likely to persist in the future--contradicts the stem itself
d) Tthe current price fully reflects the promising growth prospects------aahaa!..if the current price reflects all the prospects then there is no reason for the share to be overpriced in the future..tht's whr a little knowlege abt stocks comes in handy!
e) useless crap..move on..
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Re: over the last 5 years  [#permalink]

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01 Dec 2010, 12:05
1
+1 D.

Negate the choices. C was already stated, so that one should be crossed off.

a is irrelevant
b deals with the past, also irrelevant to the conclusion which deals with the future.
e While the stock can outperform its sector, it doesn't necessarily mean there will be a rise or appreciation.

anilnandyala wrote:
Over the past 5 years, Company X has posted double-digit growth in annual revenues, combined with a substantial improvement in operating margins. Since this growth is likely to persist in the future, the stock of Company X will soon experience dramatic appreciation.

The argument above is based on which of the following assumptions?
a) Company X has a large market share in its industry.
b)Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.
c)The growth of Company X is likely to persist in the future.
d)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
e)The stock of Company X will outperform other stocks in the same industry.
Manager
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Re: over the last 5 years  [#permalink]

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02 Dec 2010, 20:57
I chose D, applying the negation technique....
C was tempting, but it is already stated in the passage...
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Re: over the last 5 years  [#permalink]

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02 Dec 2010, 23:27
1
The argument made a sweeping next statement after substantial improvement in operating margins to saying that growth is likely to persist and that the company's stock price is going to increase dramatically. How is this supported by the argument? Its not, therefore an unstated premise or assumption has been made, only D provides an assumption relevant to this that says we assume that the current stock price does not reflect the full appreciation of the company (don't you love multiples .

anilnandyala wrote:
Over the past 5 years, Company X has posted double-digit growth in annual revenues, combined with a substantial improvement in operating margins. Since this growth is likely to persist in the future, the stock of Company X will soon experience dramatic appreciation.

The argument above is based on which of the following assumptions?
a) Company X has a large market share in its industry.
b)Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins.
c)The growth of Company X is likely to persist in the future.
d)The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.
e)The stock of Company X will outperform other stocks in the same industry.
Manager
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Re: over the last 5 years  [#permalink]

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03 Dec 2010, 10:36
Author assumes that with the consistant growth of the company, the growth in the stocks will also take place which is why, current stocks do not reflect positive results what it's growth does.

Author is optimistic that the growth in terms of stocks will steadily take place with the overall growth of the company.

Manager
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Posts: 78
Re: over the last 5 years  [#permalink]

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19 Dec 2010, 19:42
This is a strange question. If you bring in outside knowledge -- specifically, if you consider the efficient markets hypothesis, which you will learn about DURING your MBA -- the question is painfully easy without even analyzing the argument precisely. It is as if the question writer got confused between writing a GMAT question and writing a question for a Corporate Finance quiz.
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Re: Assumption CR (500-600 level)  [#permalink]

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25 Jan 2011, 10:02
D is correct. But this is a really good question.
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Re: Assumption CR (500-600 level)  [#permalink]

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26 Jan 2011, 08:23
D, straight, easy... wish all GMAT questions were like this one
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Re: Assumption CR (500-600 level)  [#permalink]

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27 Jan 2011, 13:56
D. easy one. No more than 1 contender for OA.
Senior Manager
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Re: Assumption CR (500-600 level)  [#permalink]

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27 Jan 2011, 14:45
for those using negation technique- keep in mind that it is logical negation that works all the time and not the exact opposite. Check out the Powerscore Bible for more on that technique
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Re: Assumption CR (500-600 level)  [#permalink]

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27 Jan 2011, 16:44
What is the source of the question?

Posted from GMAT ToolKit
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Re: Over the past 5 years, Company X has posted double-digit  [#permalink]

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23 Apr 2012, 12:29
I just use the POE to choose D. Not quite sure about the reasoning
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Re: Over the past 5 years, Company X has posted double-digit  [#permalink]

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30 Aug 2013, 06:21
1
The argument concludes that the stock of the firm will experience rapid growth.
The basis for this claim is that the firm has shown strong historical performance
that is likely to continue in the future. The stock will appreciate dramatically in the
future as a result only if it has not already appreciated in anticipation of the
company's expected growth.
(A) The argument focused on the potential for stock appreciation rather than
company weight in the industry. A company with a large market share may well
experience poor stock performance, while a company with a small market share
may continue to grow and increase in value.
(B) Since the conclusion of the argument is made regarding the future outlook, it
is not necessary to assume that the company had been growing, or had even
existed, prior to the past 5 years. A new firm that has been in existence for only 5
years may well present an excellent investment opportunity.
(C) This statement is explicitly stated in the argument and therefore does not
have to be assumed.
(D) CORRECT. If this assumption were not true, i.e. if the current stock price
already reflects future growth prospects, then the premise that the company will
experience high growth is certainly insufficient to warrant future stock price
appreciation, since all of this growth would already be reflected in the current
price. It is necessary to assume that the current price of Company X stock does
not yet reflect the promising growth prospects of the firm, allowing the possibility
that the stock price will rise further.
(E) Note that the argument makes a claim about the absolute return of stock X
rather than its return relative to the industry. Therefore, to justify the rapid growth
in the stock price, it is not necessary to assume that the company will outperform
its competitors. For example, if the industry itself is growing very rapidly, other
companies in the industry can experience just as rapid appreciation in stock
prices.
Re: Over the past 5 years, Company X has posted double-digit   [#permalink] 30 Aug 2013, 06:21

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