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Companies considering new cost-cutting manufacturing process
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18 May 2006, 05:15
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Companies considering new cost-cutting manufacturing process often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.
Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?
A. The costs of materials required by the new process might not be known with certainty.
B. In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
C. Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
D. Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
E. The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.
OA to follow
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Re: Companies considering new cost-cutting manufacturing process
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18 May 2006, 09:19
BG wrote:
Companies considering new cost-cutting manufacturing process often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.
Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?
A. The costs of materials required by the new process might not be known with certainty. B. In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment. C. Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process. D. Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not. E. The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.
OA to follow
Either Cost, Selling Price or Market share has to fluctuate in the projection period as opposed to remaining "constant". Only D poses such a threat.
Re: Companies considering new cost-cutting manufacturing process
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18 May 2006, 23:00
Will go with E.......
Let me explain.
The question is "which of the following would cast the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes"
The author doesnot say whether the company is taking any decision to undertake the investment or not. It just refers to the method the company follows.
The most serious disadvantage to a company using such method would be if the method is flawed.
This is stated in E, as it says the period of year chosen may affect the result, hence the method is not foolproof.
Still interested in this question? Check out the "Best Topics" block above for a better discussion on this exact question, as well as several more related questions.
Thank you for understanding, and happy exploring!
gmatclubot
Re: Companies considering new cost-cutting manufacturing process [#permalink]