The Widget world has grown from a niche interest of teenage and colleg

2. On the day of the first analyst’s report, Next Widget’s stock price was approximately what percent of its stock price at its initial public offering?

Explanation

Whereas the first question was based on an analysis of written information, this question is quantitative and a traditional multiple-choice question, like all the problem solving questions in the Quantitative section of the GMAT. Finally, you will need to consult both tabs in order to answer this question correctly. Both analysts mention the $113.17 share price in late 2011 as the all-time high price the stock has reached.

The second analyst says that this price is 415% higher than the initial public offering (IPO) price, while the first analyst says that the share price has dropped by 33% since reaching $113.17. You’re in Percent Change-land here, and even though you’re given an absolute value ($113.17), you should ignore it for the purpose of answering this question.

It’s true that based on the stock’s all-time high price you can calculate its IPO price and its price at the time of the first analyst’s report (let’s call this the current price), and then find what percent of the IPO price is the current price—but that would be unnecessarily complicated. You’re only looking for a percent change, not actual values.

Let the IPO price be 100. Then, since the all-time high price is 415% higher than the IPO price, the all-time high price is $515. The current price is 33% lower than $515, so it is 67% of $515:

67%*515 = 67/100*515 ~=345

So the current price of (approximately) 345 is (approximately) 345% of the IPO price of 100.

The correct answer is (C).

1. For each of the following statements, select Inferable if the statement is reasonably inferable from the information provided. Otherwise, select Not inferable.

Explanation

Step 1: Begin with the big picture.

This prompt presents two sources of information, reports by two analysts about the company Next Widget. The first analyst believes the company’s stock is worth buying, whereas the second one disagrees. The first analyst supports his opinion by saying that Next Widget is a very successful company, has many popular products, and should increase its revenues due to its expansion in South America. The analyst also expects that the widget industry in general stands to gain from softness in the gizmo industry. Note also the figures: the share price is down in 2012, having reached its high late in 2011. (Don’t worry about the exact numbers at this stage; just take note that they’re there, and you can come back to them if you need to when you look at the questions.) The second analyst acknowledges that Next Widget has been very successful to date, but sees reason for concern. In support of her argument, she cites the declining rate of increase in the company’s revenues in 2010 and 2011 and increased domestic competition from another company. She is also not enthusiastic about the South American expansion, forecasting a loss at first for the company. This analyst quotes more figures than the first one. In addition to the declining rate of revenue increase, she also mentions the percent increase in the share price since the IPO and quotes the same high price as the one the first analyst mentions. Make a mental note and move on to the first question.

Step 2: Size up the question.

This is a yes/no question asking you to determine whether you can infer certain statements based on the two analyst reports. The statements appear to be self-contained to one tab per statement: that is, in this case you need to look only in the first tab for statements referring to the first analyst, and only in the second tab for statements referring to the second analyst.

Step 3: Answer the question:

Answer for Statement 1: Does the first analyst say anything about profits in South America? No, he expects a boost in revenues, but that’s about it. Therefore, you cannot infer that he expects Next Widget to make a profit in South America in the coming year.

The correct answer is “Not inferable.”

Answer for Statement 2: The second analyst mentions Widgitainers as an up-and-coming company that should give Next Widget increased competition in the future. However, the analyst makes no mention of Widgitainers’ stock.

The correct answer is “Not inferable.”

Answer for Statement 3: The second analyst says that Next Widget’s revenue increases of $210 million in 2010 and $193 million in 2011 were the smallest of the past decade, and that this trend will likely continue in 2012. What trend is this? If these two figures were the smallest in a decade, then the revenue increase in 2009 must have been greater than (or possibly equal to) the revenue increase in 2010.

Furthermore, the revenue increase in 2011 is smaller than that in 2010, so the trend the analyst mentions is that of a declining rate of revenue increase at least for the years 2009–2011. She expects this trend to continue, so she believes Next Widget will either not increase its revenues in 2012, or it will increase them by less than (or at least no more than) the 2011 figure: $193 million.

The correct answer is “Inferable.”­