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# To avoid a hostile takeover attempt, the board of directors

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Manager
Joined: 25 Oct 2013
Posts: 141
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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01 Mar 2014, 03:22
With A, even if chocolate prices may rise, the raw material cost is high, so the rise in chocolate prices may be compensated leaving the company with same revenues as in the past, so I ruled out A.

With C & E I was having same problem that is each talks about only 1 business and leaves out other three. I picked E because it quantified 60% price drop in raw material leading me to think the revenue growth will become strong.

Like few posters, I feel the OA is debatable.
Intern
Joined: 26 Mar 2014
Posts: 4
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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19 May 2016, 20:44
initially, i was thinking that the conclusion will be something like this:
The directors anticipate that purchase will plunge the corp into debt and makes it unattractive. Thus, the conclusion is corporation wants to plunge its profit and suffer loses during the first 5 years to make it unattractive.

But upon close examination, the sentence continues:
"but that steadily rising insurance rates would allow the company to pay off the debt within five years."
so, my conclusion deviates and becomes " the corporation wants to plunge into debt initially, but it wants to make profit from the rising insurance rates to cover the debt losses in 5 years".

(A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide. - weakens the argument. prices dive ---> profits decrease ---> corp might not earn profit to cover losses.
(B) New government regulations require a 30 percent across-the-board rate rollback of all insurance companies, to begin immediately and to be completed within a five-year period. - weakens argument. rollback of 30% price ---> profits decrease ---> corp might not earn profit to cover losses.
(C) Congress enacts a statute, effective after six months, making it illegal for any parent not to carry health insurance coverage for his or her child. - strengthen argument ---> parents MUST buy health insurance coverage for child --> profits from additional insurance premiums collected ---> intent of the argument.
(D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence. - weakens the argument. revenues drop from dwindling movie theater attendance ---> profits decrease ---> corp might not earn profit to cover losses.
(E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level - weakens the argument. prices of paper falls---> profits decrease ---> corp might not earn profit to cover losses.
Manager
Joined: 24 Apr 2014
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Location: India
Concentration: Strategy, Operations
GMAT 1: 730 Q50 V38
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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19 May 2016, 23:40
ritula wrote:
To avoid a hostile takeover attempt, the board of directors of Wellco, Inc., a provider of life and health insurance, planned to take out large loans and use them to purchase a publishing company, a chocolate factory, and a nationwide chain of movie theaters. The directors anticipated that these purchase initially would plunge the corporation deep into debt, rendering it unattractive to those who wanted to take it over, but that steadily rising insurance rates would allow the company to pay off the debt within five years. Meanwhile, revenues from the three new businesses would enable the corporation as a whole to continue to meet its increased operating expenses. Ultimately, according o the directors’ plan, the diversification would strengthen the corporation by varying the sources and schedules of its annual revenues.

Which of the following, assuming that all are equally possible, would most enhance the chances of the plan’s success?
(A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide.
(B) New government regulations require a 30 percent across-the-board rate rollback of all insurance companies, to begin immediately and to be completed within a five-year period.
(C) Congress enacts a statute, effective after six months, making it illegal for any parent not to carry health insurance coverage for his or her child.
(D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence.
(E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level

Bit tricky, btw C and E, I feel C strengthens more the plan . If law makes it mandatory for parents to take insurance for children then the sales of the insurance company increases and the parent company will make the loan payments more easily and in less time .

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Manager
Joined: 24 May 2016
Posts: 134
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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19 Aug 2016, 04:40
To avoid a hostile takeover attempt, the board of directors of Wellco, Inc., a provider of life and health insurance, planned to take out large loans and use them to purchase a publishing company, a chocolate factory, and a nationwide chain of movie theaters. The directors anticipated that these purchase initially would plunge the corporation deep into debt, rendering it unattractive to those who wanted to take it over, but that steadily rising insurance rates would allow the company to pay off the debt within five years. Meanwhile, revenues from the three new businesses would enable the corporation as a whole to continue to meet its increased operating expenses. Ultimately, according o the directors’ plan, the diversification would strengthen the corporation by varying the sources and schedules of its annual revenues.

Which of the following, assuming that all are equally possible, would most enhance the chances of the plan’s success?

A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide.
Wellco has acquired a chocolate factory, whose business is to produce chocolate. If cacao beans become more scarce and chocolate prices increase, less people will consume chocolate. Hence, less chocolate will be produced and the revenues of the Company will decrease. Hence, this option decreases the chances of the plan's success.
B) New government regulations require a 30 percent across-the-board rate rollback of all insurance companies, to begin immediately and to be completed within a five-year period.
If regulations require the Board to be partially renewed every year, the incoming Board members may not agree with the decision of the current Board members. Hence, this option could decrease the chances of the plan's success.
C) Congress enacts a statute, effective after six months, making it illegal for any parent not to carry health insurance coverage for his or her child.
The revenues of the life and health insurance companies should increase. To the extent to which Wellco is able to capture some of this new revenues, it will be able to increase its revenues. Hence, this option should increase the chances of the plan's success.
D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence.
If movie theatre attendance decreases, the revenues from the chain of movie theatres will decrease. Hence, this option decreases the chances of the plan's success.
E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level.
The discovery of this process entails that it is now less expensive to produce paper and, hence, to publish books. This could imply the entry of new competitors into the industry and drive existing companies' revenues and profits downwards.
But even if we suppose that no new competitors enter into the industry, why should we infer that the publishing company will maintain its prices while paper production costs have decreased? The company may well be forced to decrease selling prices in response to existing competitors' actions.
Ultimately, this option refers to an element that is secondary to the overall takeover defense strategy. Hence, option C, which refers to the core business and the most relevant element of the takeover defense strategy, would be preferred over this option.
Intern
Joined: 02 Jun 2016
Posts: 11
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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29 Aug 2016, 09:18
CR is creating a lot of Problem in my life..I have even buy the e-gmat whole course and revise the same five times..

Intern
Joined: 02 Jun 2016
Posts: 11
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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29 Aug 2016, 09:22
What is pre Thinking.
I not able to pre think a single Question

Intern
Joined: 02 Jun 2016
Posts: 11
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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29 Aug 2016, 09:23
CR is creating a lot of Problem in my life..I have even buy the e-gmat whole course and revise the same five times..

Intern
Joined: 12 Aug 2018
Posts: 2
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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14 Aug 2018, 19:50
x2suresh wrote:
ritula wrote:
To avoid a hostile takeover attempt, the board of directors of Wellco, Inc., a provider of life and health insurance, planned to take out large loans and use them to purchase a publishing company, a chocolate factory, and a nationwide chain of movie theaters. The directors anticipated that these purchase initially would plunge the corporation deep into debt, rendering it unattractive to those who wanted to take it over, but that steadily rising insurance rates would allow the company to pay off the debt within five years. Meanwhile, revenues from the three new businesses would enable the corporation as a whole to continue to meet its increased operating expenses. Ultimately, according o the directors’ plan, the diversification would strengthen the corporation by varying the sources and schedules of its annual revenues.

Which of the following, assuming that all are equally possible, would most enhance the chances of the plan’s success?
(A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide.
(B) New government regulations require a 30 percent across-the-board rate rollback of all insurance companies, to begin immediately and to be completed within a five-year period.
(C) Congress enacts a statute, effective after six months, making it illegal for any parent not to carry health insurance coverage for his or her child.
(D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence.
(E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level

A --> diving up chocloate prices.. infact this may decrease the choclate sales.... and decrease the business.. least/no chances of plan success.
B --> rollback pricess..may decrease the company revenues.
C --> law enacted.. more people will buy insurance.. more business for insurance company.. more revenues
C looks good.
D --> weaken.
E -->this may decrease operating cost of publishing company.. and increase revenues from publishing company.. We don't know how other two business will do..
Manager
Joined: 18 Aug 2012
Posts: 86
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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17 Jun 2019, 10:32
Overthinking led me to a wrong answer. I chose B which actually is weakening the argument. I don't know what I do for silly mistakes. It was a simple C

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Intern
Joined: 06 Feb 2019
Posts: 10
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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23 Jun 2019, 22:32
The conclusion is "according o the directors’ plan, the diversification would strengthen the corporation by varying the sources and schedules of its annual revenues."

Option C states that the company would be able to survive without the need of the three new business. This actually undermines the conclusion that states that diversification would help the organization.

The correct option would be between A and E.

A was eliminated because decreased availability of Cacao beans could impact the Insurance Company owned Chocolate Factory as well. So, it can be both a positive and negative factor.

Option E only has a positive factor. Hence, should be the answer.

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Intern
Joined: 26 Jul 2018
Posts: 13
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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24 Jun 2019, 18:23
A very Non GMAT style question.... C says nothing about insurance premium.. It assumes that presently most of the Kids are having health insurance..

With clear chances of profit for wellco, E seems far better than C...
Senior Manager
Joined: 25 Feb 2019
Posts: 335
Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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25 Jun 2019, 09:52
and not to carry insurance coverage means ?

people should always carry their kids' insurance paper or they should get the covered in insurance coverage?

not sure

I went with E

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Re: To avoid a hostile takeover attempt, the board of directors   [#permalink] 25 Jun 2019, 09:52

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