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To avoid a hostile takeover attempt, the board of directors

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

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Updated on: 29 Nov 2017, 21:16
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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

Originally posted by ritula on 20 Mar 2009, 01:45.
Last edited by Mahmud6 on 29 Nov 2017, 21:16, edited 2 times in total.
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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20 Mar 2009, 03:15
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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..
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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20 Mar 2009, 12:49
Good question. I have to agree with C, even if chose A initially. I focussed on these 3 new businesses, and just based on that A came closest on my radar.
What is the source?
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20 Mar 2009, 20:34
Source is CR1000.
BTW A in fact weakens the chances of business plan success. If the raw material becomes scarce, the manufacturing will bcum costly.
E was close to the answer. bcos if the paper bcumes cheap, th eprinting press industry will bcum profitable.
x2suresh, can u pls elaborae more on this? even if we chose C which increasesthe revenue of insurance, how do we know how will the other 3 businesses fare?

botirvoy wrote:
Good question. I have to agree with C, even if chose A initially. I focussed on these 3 new businesses, and just based on that A came closest on my radar.
What is the source?
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21 Mar 2009, 04:30
ritula wrote:
Source is CR1000.
BTW A in fact weakens the chances of business plan success. If the raw material becomes scarce, the manufacturing will bcum costly.
E was close to the answer. bcos if the paper bcumes cheap, th eprinting press industry will bcum profitable.
x2suresh, can u pls elaborae more on this? even if we chose C which increasesthe revenue of insurance, how do we know how will the other 3 businesses fare?

botirvoy wrote:
Good question. I have to agree with C, even if chose A initially. I focussed on these 3 new businesses, and just based on that A came closest on my radar.
What is the source?

Here the 3 business faring well is sub-ordinate to insurance company doing well in insurance domain. The use of word "meanwhile" clearly indicates this. E can be eliminated because whenever raw material needed for manufacturing goes down that specific segment of business is ought to tranfer the benefits to consumers (similar to airfares going down when oil prices go down). Hence E weakens as it may hit the business plan. So only C is left. I hope this was clear..
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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21 Mar 2009, 13:13
uf!

I'd say B

A, C, D and E out: because they refer to single parts of the new business and there is nothing that makes us to consider that any of those parts are more important.

Therefore B

OA?

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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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22 Mar 2009, 12:38
ritula wrote:
OA is C

isn't there OE? or can someone explain?

Thanks
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22 Mar 2009, 20:45
NO there is no OE. but i think suresh has explained quite well
JohnLewis1980 wrote:
ritula wrote:
OA is C

isn't there OE? or can someone explain?

Thanks
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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20 Aug 2009, 10:56
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ritula wrote:
OA is C

I dont undestand why is C.

The plan was about taking large loans and use them to purchase a publishing company, a chocolate factory, and a nationwide chain of movie theaters.

The question says which scenario would most enhance the chances of the plan’s success? so it has to be something concerning those 3 business, not concerning the insurance business itself...

PS: i was with E
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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20 Aug 2009, 12:29
noboru wrote:
ritula wrote:
OA is C

I dont undestand why is C.

The plan was about taking large loans and use them to purchase a publishing company, a chocolate factory, and a nationwide chain of movie theaters.

The question says which scenario would most enhance the chances of the plan’s success? so it has to be something concerning those 3 business, not concerning the insurance business itself...

PS: i was with E

Let me see if I can explain it little more.

Based on the question stem, the intention of the board of directors of Wellco is to take huge loans and buy three diverse businesses. They know that this action(taking loans) will put them into huge debts but atleast no one will dare to take over the WellCo(This way the plan is to temporarily bail out from takeover by other firm).In the course of the time(say 5 years) they will be steadily increase the life insurance which is their primary business. They can use this to pay off the debts. (The revenues that come out of the three businesses can meet the operating costs). Now to strengthen this plan I will look at ans choices which increases the life insurance rates.

(A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide. (This may convey a message that cholocate business might be very good but no information can be derived for other 2 businesses nor any thing that supports to increase the life insurance - Out of the game)
(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. (This is infact weakening the plan since this clue conveys the message there is going to be a reduction in the insurance rates with immediate effect - Out of the game)
(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.(This is strengthen the plan because, a rule will be in place after 6 months, where it is illegal for a parent not to carry the health coverage for his / her child. SO this will make the parents to buy the health coverage - an additional source of buisness which helps Wellco to go by their plan- This is my pick)
(D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence. (This may convey a message that Movie theater business might not be doing well becuase of the TV proices dropping sharpely. So chances are that this may not contribute to the directors planned operating costs which is weakening the plan - Out of the game)
(E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level(This may convey a message that paper business might improve since the raw materials price is reduced. But not sure how the other business are doing nor it says anything about how the insurance rates can be improved. - Out of the game)
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03 Nov 2009, 06:25
mrsmarthi wrote:
noboru wrote:
ritula wrote:
OA is C

I dont undestand why is C.

The plan was about taking large loans and use them to purchase a publishing company, a chocolate factory, and a nationwide chain of movie theaters.

The question says which scenario would most enhance the chances of the plan’s success? so it has to be something concerning those 3 business, not concerning the insurance business itself...

PS: i was with E

Let me see if I can explain it little more.

Based on the question stem, the intention of the board of directors of Wellco is to take huge loans and buy three diverse businesses. They know that this action(taking loans) will put them into huge debts but atleast no one will dare to take over the WellCo(This way the plan is to temporarily bail out from takeover by other firm).In the course of the time(say 5 years) they will be steadily increase the life insurance which is their primary business. They can use this to pay off the debts. (The revenues that come out of the three businesses can meet the operating costs). Now to strengthen this plan I will look at ans choices which increases the life insurance rates.

(A) A widespread drought decreases the availability of cacao beans, from which chocolate is manufacture, diving up chocolate prices worldwide. (This may convey a message that cholocate business might be very good but no information can be derived for other 2 businesses nor any thing that supports to increase the life insurance - Out of the game)
(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. (This is infact weakening the plan since this clue conveys the message there is going to be a reduction in the insurance rates with immediate effect - Out of the game)
(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.(This is strengthen the plan because, a rule will be in place after 6 months, where it is illegal for a parent not to carry the health coverage for his / her child. SO this will make the parents to buy the health coverage - an additional source of buisness which helps Wellco to go by their plan- This is my pick)
(D) Large-screen televisions drop dramatically in price due to surprise alterations in trade barriers with Japan; movie theater attendance dwindles as a consequence. (This may convey a message that Movie theater business might not be doing well becuase of the TV proices dropping sharpely. So chances are that this may not contribute to the directors planned operating costs which is weakening the plan - Out of the game)
(E) A new, inexpensive process is discovered for making paper pulp, and paper prices fall to 60 percent of their former level(This may convey a message that paper business might improve since the raw materials price is reduced. But not sure how the other business are doing nor it says anything about how the insurance rates can be improved. - Out of the game)

IMO C.. as suggested by other. 'A' is out of scope as the cost of chocolates may go up. And we are not aware if this would be profitable or would lead to loss( less ppl buy choc). So A is out.
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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03 Nov 2009, 06:58
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This question is absolutely terrible! The GMAT would NEVER give a situation with this many complexities in it, and then give so many defensible answers. The OA, C, would definitely help the company (its a health insurance company, after all, so a mandate to provide health insurance to children should be helpful), but choices A and E are both helpful for the company as well. Of course the drop in paper prices would help the publishing company, and a rise in chocolate prices would help the chocolate company.

We do NOT recommend anybody using this question as an honest learning experience.

What this question is going for is only evident in this sentnce: "...that steadily rising insurance rates would allow the company to pay off the debt within five years." This indicates that the plan hinges on a rise in insurance rates. Then, choice C is supposed to state that the new law, effective after only six months (which is less than five years), makes the plan more likely to work. This ALMOST makes sense, but not really. "Rising insurance RATES" does not match answer choice C: in fact, logically, if everybody were required to buy insurance, rates could go DOWN.

In fact, on the GMAT, what is far more likely to be asked about is the strategy about taking out large loans and then expecting the diversification of the company to allow them to be repaid. We at Knewton think that A,C, and E all accomplish this. This question is not GMAT-like.

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

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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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21 Dec 2010, 21:48
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

Guys , I have posted this question for a purpose . In powerscore CR bible , I have read that even if the question stem suggests that there can be more than one right answer , there is only one right answer and therefore you should not worry about modifiers like "most" or "least" etc . I don't see that to be working here . I find both option A and C to be fine here . I need some expert advice here
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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21 Dec 2010, 22:14
Merging similar topics.

But for the question you asked - A weakens the argument. If the raw material becomes scarce, then the cost of buying that material becomes higher which means lesser revenue in the end. Or even if not lesser, you can't necessarily say anything about whether the raw material costs are lesser or greater than final sale price, and hence this option is inconclusive.
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21 Dec 2010, 22:23
oh...i tht that more cost of raw materials implies more cost for end product and hence more revenue . I guess that rise in the prices of raw materials does not tells us anything.
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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25 Dec 2010, 09:48
The OA is a bit confusing and questionable, hence, not reliable because in the question stem there is no information about children and a number of them who do not have insurance. We cannot be sure that through compulsory enhancing the number of insured people the revenues will be increased insofar as we do not posses necessary data about children to be given an insurance. E.g. current number of people who have got an insurance from the Wellco company is, say, 10,000 and a number of prospective children to be insured are 1 million, then the option C stands to be correct. But if a number of prospective children to be insured are only 100 then ans C can be easily rejected. In result of such an uncertainty the OA remains debatable.
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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25 Dec 2010, 14:00
feruz77 wrote:
The OA is a bit confusing and questionable, hence, not reliable because in the question stem there is no information about children and a number of them who do not have insurance. We cannot be sure that through compulsory enhancing the number of insured people the revenues will be increased insofar as we do not posses necessary data about children to be given an insurance. E.g. current number of people who have got an insurance from the Wellco company is, say, 10,000 and a number of prospective children to be insured are 1 million, then the option C stands to be correct. But if a number of prospective children to be insured are only 100 then ans C can be easily rejected. In result of such an uncertainty the OA remains debatable.

~~~~~~~~~~~

I picked D. After reading the posts I agree that C is the correct answer.

The statement "Meanwhile, revenues from the three new businesses would enable the corporation as a whole to continue to meet its increased operating expenses" implies that these new business units are self sustaining, kind of. So all we need to do is pick an answer choice that will support revenue growth. I think choice C does just that. Since we do not k now the purchase price of the three new companies we must not analyze the growth in additional revenue for the scenario mentioned in choice C. All we need to find is an option that would provide additional revenue. C is the best of the rest but not necessarily bulletproof.
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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30 Dec 2010, 04:44
feruz77 wrote:
The OA is a bit confusing and questionable, hence, not reliable because in the question stem there is no information about children and a number of them who do not have insurance. We cannot be sure that through compulsory enhancing the number of insured people the revenues will be increased insofar as we do not posses necessary data about children to be given an insurance. E.g. current number of people who have got an insurance from the Wellco company is, say, 10,000 and a number of prospective children to be insured are 1 million, then the option C stands to be correct. But if a number of prospective children to be insured are only 100 then ans C can be easily rejected. In result of such an uncertainty the OA remains debatable.

Feruz, OA doesnt guarantee the success of the plan. But does it make the plan's success more likely than do the other choices. I think, it does.
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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16 Mar 2011, 04:44
Agree with KnewtonAlex

this is an example of bad not-GMAT-like question.

A is still debatable (rising cost of raw materials may mean everything we can not readily assumes smth to be true if it is not true), while C and E are both may be true.

Answer C readily assumes that there are parents who do not insure their children and thus if the law is encated then Wellco, Inc., will benefit from this change. What if all parents love theri children so much that all of adults insured their kids when they born. Then if the act is enacted, Wellco, Inc., will have 0% or revenue increase.

poorly constructed question.
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Re: To avoid a hostile takeover attempt, the board of directors  [#permalink]

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17 Mar 2011, 11:50
I had E. Dont know why C is the answer.. If 6 months down insurance is made mandatory then this is good enuf reason for any company to take over the insurance compay, which , in the first place , was the idea for buying all 3 companies
Re: To avoid a hostile takeover attempt, the board of directors &nbs [#permalink] 17 Mar 2011, 11:50

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