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

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

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28 Oct 2008, 11:09
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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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28 Oct 2008, 11:18
IMO d.

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28 Oct 2008, 11:18
looks like healthy D

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28 Oct 2008, 11:19

If the stock will soon experience dramatic appreciation, and the company in past five years has shown DD growth in annual revenues and substantial improvement in operating margins, then the current price of the stock of Company X does not fully reflect the promising growth prospects of the firm.

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28 Oct 2008, 11:22
Another D.

Do the negation test and the conclusion will fall apart.

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28 Oct 2008, 11:29
OA is (D). Agree, negation helps a great deal in these type of questions.

Wow.. that was fast (so many responses in less than 5ish mins) Thanks.
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28 Oct 2008, 11:37
Conclusion: Stock of company X will experience dramatic appreciation.

a) Company X has a large market share in its industry. [Has nothing to do with the stock appreciation – eliminate it]
b) Prior to the last 5 years, Company X had experienced similarly dramatic growth in sales associated with stable or improving operating margins. [History is history – eliminate it]
c) The growth of Company X is likely to persist in the future. [Repetition whatever the conclusion says – eliminate it]
d) The current price of the stock of Company X does not fully reflect the promising growth prospects of the firm. [Hold on]
e) The stock of Company X will outperform other stocks in the same industry. [Other stock – out of scope]

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29 Oct 2008, 05:08
icandy can you help me in negation process, how to do that...means what should be the approach of that? for this question I also reached to ans D, but not by negation process

I would really appte if you explain a process little bit.

regards.

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29 Oct 2008, 07:56
leonidas 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.

If D is true, the the price should (even must) appreciate. Other choices might have hidden or unspelled costs.

Good question.
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29 Oct 2008, 11:05
icandy can you help me in negation process, how to do that...means what should be the approach of that? for this question I also reached to ans D, but not by negation process

I would really appte if you explain a process little bit.

regards.

Let me try ....

For assumption questions we can try the Assumption-Negation technique to check if the answer choice is right ....

First, You apply the Assumption-Negation technique only on the strong answer contenders after you eliminate the obviously wrong answers (not on all 5 choices). This is because we are short on time on GMAT.

Only 2 steps.

1. Logically negate the answer choice under consideration
2. The answer choice that attacks/weakens the conclusion is the correct answer.

Lets take our example
leonidas 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.

Conclusion: the stock of Company X will soon experience dramatic appreciation.

The conclusion brings in the new term "stocks". I said new because none of the premises had this word. So the assumption will MOST likely have "stocks" mentioned.

Only choices D and E have the word "stock"

Now we have 2 contenders for our answer, Choices D and E.

Assumption-Negation technique applied to Choice D :
negate choice D. ----> The current price of the stock of Company X fully reflects the promising growth prospects of the firm.

does this weaken the argument ? This actually weakens the argument. This is the correct answer

Assumption-Negation technique applied to Choice E :
negate choice E. ----> The stock of Company X will NOT outperform other stocks in the same industry
does this weaken the argument ? This does not affect the argument in any way. The company may or may not perform its competitors, but the company may still have double digit growth.

So D.
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Re: CR: Growth Revenues   [#permalink] 29 Oct 2008, 11:05
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