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Re: Tanco, a leather manufacturer, uses large quantities of common salt to [#permalink]
Maldonado wrote:
With all due respect,

Not so fast...

I think all of the replies why B is wrong are incorrect. You cannot simply assume that Capital Expenditures are included in the profit calculation that easily...

(this will be a little bit technical)

1) We can use the Cash in hand, which is a Balance Sheet item, so the Profits would not be affected
2) We can capitalize the Capital Expenditures instead of expensing, which shows up as a cost on the I/S, and this would have no effect on the profit

assuming no interest on cash, d&a, debt, interest, etc... (which I think would be a waaaay big step)

I think either this question or the explanations given have flaws.

One may say that "our goal is to select the one which 100% cannot have any effect and since we can make some assumptions which would push A towards being a possible wrong answer" then I would say "well, if we can make such huge assumptions what stops us making similar huge assumptions for E to eliminate it?????"

Any further thought would be appreciated.


Hey Maldonado, that is a bit extreme. The GMAT does not expect you to know all that.

That being said, It probably won't penalise you for knowing the technicalities. All of you what you said is true, but you do realise that it could decrease the profit. Alternatively, it could be classified as an expense rather than as a capital expenditure. It would depend on the nature of the business, Accounting standards, etc. If anything, this is another reason why we need to dive deeper into option B, solidifying that its important to research the equipments.

As far as option E goes, It really doesn't matter what the properties are as long as we know that they do the job just as efficiently.
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Re: Tanco, a leather manufacturer, uses large quantities of common salt to [#permalink]
Brian123 wrote:
Maldonado wrote:
With all due respect,

Not so fast...

I think all of the replies why B is wrong are incorrect. You cannot simply assume that Capital Expenditures are included in the profit calculation that easily...

(this will be a little bit technical)

1) We can use the Cash in hand, which is a Balance Sheet item, so the Profits would not be affected
2) We can capitalize the Capital Expenditures instead of expensing, which shows up as a cost on the I/S, and this would have no effect on the profit

assuming no interest on cash, d&a, debt, interest, etc... (which I think would be a waaaay big step)

I think either this question or the explanations given have flaws.

One may say that "our goal is to select the one which 100% cannot have any effect and since we can make some assumptions which would push A towards being a possible wrong answer" then I would say "well, if we can make such huge assumptions what stops us making similar huge assumptions for E to eliminate it?????"

Any further thought would be appreciated.


Hey Maldonado, that is a bit extreme. The GMAT does not expect you to know all that.

That being said, It probably won't penalise you for knowing the technicalities. All of you what you said is true, but you do realise that it could decrease the profit. Alternatively, it could be classified as an expense rather than as a capital expenditure. It would depend on the nature of the business, Accounting standards, etc. If anything, this is another reason why we need to dive deeper into option B, solidifying that its important to research the equipments.

As far as option E goes, It really doesn't matter what the properties are as long as we know that they do the job just as efficiently.


Dear Brian123,

Thank you very much for your response. I totally understand what you mean. However, in this point. may I kindly ask "if what I mentioned are a bit more technical than expected, what stops us from getting technical for option E too?". Maybe there are some stuff that may be the case for E that chemical engineers would know but we do not? Maybe there is a chance with same probability as B for E to hold?

I think we cannot eliminate option B on the basis for what have been stated by many as the explanation (that CapEx reduces profit). Because (I see that you are from accounting background) many would know that generally, CapEx is capitalized, not expensed.

Or... This question is flawed and that's why GMAC decided to retire it...
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Re: Tanco, a leather manufacturer, uses large quantities of common salt to [#permalink]
Maldonado wrote:
Brian123 wrote:
Maldonado wrote:
With all due respect,

Not so fast...

I think all of the replies why B is wrong are incorrect. You cannot simply assume that Capital Expenditures are included in the profit calculation that easily...

(this will be a little bit technical)

1) We can use the Cash in hand, which is a Balance Sheet item, so the Profits would not be affected
2) We can capitalize the Capital Expenditures instead of expensing, which shows up as a cost on the I/S, and this would have no effect on the profit

assuming no interest on cash, d&a, debt, interest, etc... (which I think would be a waaaay big step)

I think either this question or the explanations given have flaws.

One may say that "our goal is to select the one which 100% cannot have any effect and since we can make some assumptions which would push A towards being a possible wrong answer" then I would say "well, if we can make such huge assumptions what stops us making similar huge assumptions for E to eliminate it?????"

Any further thought would be appreciated.


Hey Maldonado, that is a bit extreme. The GMAT does not expect you to know all that.

That being said, It probably won't penalise you for knowing the technicalities. All of you what you said is true, but you do realise that it could decrease the profit. Alternatively, it could be classified as an expense rather than as a capital expenditure. It would depend on the nature of the business, Accounting standards, etc. If anything, this is another reason why we need to dive deeper into option B, solidifying that its important to research the equipments.

As far as option E goes, It really doesn't matter what the properties are as long as we know that they do the job just as efficiently.


Dear Brian123,

Thank you very much for your response. I totally understand what you mean. However, in this point. may I kindly ask "if what I mentioned are a bit more technical than expected, what stops us from getting technical for option E too?". Maybe there are some stuff that may be the case for E that chemical engineers would know but we do not? Maybe there is a chance with same probability as B for E to hold?

I think we cannot eliminate option B on the basis for what have been stated by many as the explanation (that CapEx reduces profit). Because (I see that you are from accounting background) many would know that generally, CapEx is capitalized, not expensed.

Or... This question is flawed and that's why GMAC decided to retire it...


Maldonado
Yeah probably, although the question does say "most important". We essentially need to find the best (or worst in this case) out of the 5. Sometimes the best option isn't the most technical pleasing so I keep that aside while prepping. Can't really comment on the question being flawed as the answer makes sense to me and I don't know enough about the GMAT to make that judgement.

Good luck with your prep! :)
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Re: Tanco, a leather manufacturer, uses large quantities of common salt to [#permalink]
Good question, it's already given in question stem that potassium chloride will give same result as salt. So the industries intend to use potassium chloride instead of salt in leather processing.

Option E( To research on effectiveness of both) is not needed.
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Re: Tanco, a leather manufacturer, uses large quantities of common salt to [#permalink]
Correct Option E

Pharaphasing:
TANCO, a leather manufacturer,
- uses large quantities of common salt to preserve animal hides.
New environmental regulations have significantly
- increased the cost of disposing of salt water
- that results from this use, and,
- in consequence,
TANCO is considering a plan to use potassium chloride in place of common salt.
Research has shown that TANCO could
- reprocess the by-product of potassium chloride (led to save cost)
- use to yield a crop fertilizer (result from this use)
- leaving a relatively small volume of waste for disposal (in consequence)

Argument: Replacing the common salt with Potassium chloride will increase the profit and adhere environmental regulation for TANCO

In determining the impact on company profits of using potassium chloride in place of common salt,
it would be important for TANCO to research all of the following EXCEPT:

(A) What difference if any, is there between
the cost of the common salt needed to preserve a given quantity of animal hides and
the cost of the potassium chloride needed to preserve the same quantity of hides?
Wrong Strenghten - if cost of saving and earning is more from potassium choride, then it has advantages to shift.
It can impact the company profits

(B) To what extent is the equipment involved in
preserving animal hides using common salt suitable for
preserving animal hides using potassium chloride?
wrong Strengthen - if same equipement is used, again profitable, if any other equipement is needed, then additional cost involved and its returns needs to be calculated.
It can impact the company profits

(C) What environmental regulations, if any, constrain the disposal of the waste generated in reprocessing the by-product of potassium chloride?
Wrong - Strengthen - it is already mentioned in the passage and usage of potassium chloride will be useful, it can gain profit or non usage can lead to loss.
It can impact the company profits.

(D) How closely does leather those results (quality)
when common salt is used to preserve hides resemble that which results
when potassium chloride is used?
Wrong - Strenghten - leather quality will play a important role, money saved by usage of potassium chloride can improve, remain still or reduce need to be caluclated- It can impact the company profits

(E) Are the chemical properties
that make potassium chloride an effective means for preserving animal hides the same as those
that make common salt an effective means for doing so?
Correct : Weaken: Technically common salt involves sodium and Potassium chloride salt has potassium, both are "SALT"
and salt are used to preseving animal hides, hence it will be waste of research to do about SALT properties to another SALT properties
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Re: Tanco, a leather manufacturer, uses large quantities of common salt to [#permalink]
freetheking wrote:
Tanco, a leather manufacturer, uses large quantities of common salt to preserve animal hides. New environmental regulations have significantly increased the cost of disposing of salt water that results from this use, and, in consequence, Tanco is considering a plan to use potassium chloride in place of common salt. Research has shown that Tanco could reprocess the by-product of potassium chloride use to yield a crop fertilizer, leaving a relatively small volume of waste for disposal.

In determining the impact on company profits of using potassium chloride in place of common salt, it would be important for Tanco to research all of the following EXCEPT:



(A) What difference, if any, is there between the cost of the common salt needed to preserve a given quantity of animal hides and the cost of the potassium chloride needed to preserve the same quantity of hides?
This is a main determining factors for the profit factor therefore out

(B) To what extent is the equipment involved in preserving animal hides using common salt suitable for preserving animal hides using potassium chloride?
The equipments are the sole determing factor at times therefore their effeciency has to be taken into account thereforeout

(C) What environmental regulations, if any, constrain the disposal of the waste generated in reprocessing the by-product of potassium chloride?
This was the main reason for removing sodium chloride therefore out

(D) How closely does leather that results when common salt is used to preserve hides resemble that which results when potassium chloride is used?
THis is definintely essential if the material differ in appeal it does have implication in profit therefore out

(E) Are the chemical properties that make potassium chloride an effective means for preserving animal hides the same as those that make common salt an effective means for doing so?
THe chemical properties may be different however the effectiveness is all that matters therefore our answer

Therefore IMO E
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Tanco, a leather manufacturer, uses large quantities of common salt to [#permalink]
GMATNinja wrote:
Tanco is considering a plan to use potassium chloride in place of common salt. The answer choices consist of questions that may or may not be important to research in determining the impact of that plan on Tanco's profits. Before diving into the answer choices, let's make sure we understand the plan and the rationale behind it:

  • Tanco uses large quantities of common salt to preserve animal hides.
  • New environmental regulations have significantly increased the cost of disposing of salt water that results from preserving animal hides with salt. So if Tanco does not change their processes, their costs will increase significantly.
  • In order to avoid these increased costs, Tanco is considering a plan to use potassium chloride in place of common salt. That way Tanco will avoid the costs of disposing of salt water.
  • But what about the disposal of the waste from potassium chloride use? Well, research has shown that Tanco could reprocess the by-product (i.e. waste product) of potassium chloride use to yield a crop fertilizer.
  • Recycling the by-product to make crop fertilizer will leave only a relatively small volume of waste for disposal.

Sounds great! Instead of paying the increased costs of salt water disposal, Tanco can switch to potassium chloride and recycle most of the by-products. In that case, Tanco will only have to dispose of a relatively small quantity of waste.

But will implementing this plan affect company profits? Any answer choice that addresses a possible impact to Tanco's profits should be eliminated.

Quote:
A. What difference, if any, is there between the cost of the common salt needed to preserve a given quantity of animal hides and the cost of the potassium chloride needed to preserve the same quantity of hides?

We know that Tanco's plan will allow the company to avoid the increased costs of salt water disposal. But will this plan increase costs in other ways? What if the amount of potassium chloride needed to preserve some quantity of hides costs much more than the amount of common salt needed to preserve the same quantity of hides?

Sure, Tanco will save on disposal costs, but the company will have to spend more on potassium chloride than it spent on common salt. If that cost increase is large enough, then the plan to switch to potassium chloride could actually have a negative effect on profits. Tanco would certainly want to research these amounts in determining the impact of the plan on company profits, so eliminate (A).

Quote:
B. To what extent is the equipment involved in preserving animal hides using common salt suitable for preserving animal hides using potassium chloride?

If some or all of the equipment involved when using common salt is NOT suitable when using potassium chloride, then Tanco may have to upgrade or replace that equipment. If these equipment changes are small, they may not be very costly. But Tanco might have to invest a substantial amount of money in equipment modifications before switching to potassium chloride. Depending on the amounts, this could significantly affect Tanco's profits.

In determine the impact of the plan on company profits, Tanco would want to research equipment compatibility. Eliminate (B).

Quote:
C. What environmental regulations, if any, constrain the disposal of the waste generated in reprocessing the by-product of potassium chloride?

Even if the potassium chloride by-products are reprocessed to yield a crop fertilizer, Tanco will have to dispose of a relatively small quantity of waste. The quantity of waste may be small, but how expensive is it to dispose of that waste? What if the environmental regulations on this waste make its disposal significantly expensive? How would those disposal costs compare to the increased salt water disposal costs?

Depending on the exact amounts, disposal of the small quantity of potassium chloride waste might be more expensive than the disposal of salt water, even after the new regulations are implemented. Tanco would certainly want to determine whether the company will face other regulations if the plan is implemented. This question would be important to research in determining the effect of the plan on Tanco's profits. Eliminate (C).

Quote:
D. How closely does leather that results when common salt is used to preserve hides resemble that which results when potassium chloride is used?

Even if using potassium chloride is the cheaper option, will it affect the characteristics of the leather? What if using potassium chloride results in leather that is significantly different than the leather produced using common salt? Such differences, if any, could affect the demand for and/or price of Tanco's products. This could certainly affect Tanco's profits. Choice (D) presents a question that is important to research, so eliminate (D).

Quote:
E. Are the chemical properties that make potassium chloride an effective means for preserving animal hides the same as those that make common salt an effective means for doing so?

As long as both substances have the same effect on the hides, the mechanisms by which they operate are not important. Perhaps the chemical properties that make potassium chloride an effective means for preserving animal hides are significantly different than the chemical properties that make common salt an effective means for preserving animal hides.

So what? Are hides preserved using potassium chloride different than hides preserved using common salt? Knowing that the properties are different doesn't tell us whether the hides themselves will be different. Researching this question alone would not reveal potential differences in the hides or the resulting leathers.

Simply knowing whether the chemical properties are the same or different would not tell us anything about profits. Thus, this research is not important in determining the impact of the plan on company profits.

That makes (E) our answer.


Hi GMATNinja: Seeking a clarification!

As per my understanding, the waste mentioned in option C (red, bold) is different from the waste mentioned in the argument (blue, bold). Former is about the waste generated as a result of re-processing while latter is the general waste from preserving the hides.

Am I correct in my understanding?

Although, despite this distinction b/w two kinds of waste, your explaination for rejecting option C remains intact, I still want to know if what I read and understood makes sense.

Thanks
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Re: Tanco, a leather manufacturer, uses large quantities of common salt to [#permalink]
waihoe520 We can't assume high cost because cost is not discussed in the argument.
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Re: Tanco, a leather manufacturer, uses large quantities of common salt to [#permalink]
freetheking wrote:
(E) Are the chemical properties that make potassium chloride an effective means for preserving animal hides the same as those that make common salt an effective means for doing so?


But, If the chemical properties of potassium chloride are not effective for preserving animal hides then the company may need to use additional potassium chloride which may add to the cost, right? We are not seeing the chemical properties alone; We are comparing the effectiveness of potassium chloride with that of common salt. I am not able to understand the logic for rejecting (E). Please help.
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Re: Tanco, a leather manufacturer, uses large quantities of common salt to [#permalink]
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