A large company has recently increased its dividend payment

Question

A large company has recently increased its dividend payments to shareholders . Shareholders had previously been worried about the company's stock price, but are now relieved since increasing dividends generally boosts a company's stock price. However, the shareholders' optimism may be ill-founded since  spending money on the payment of dividends often indicates that the company has exhausted more lucrative investments for its cash reserves and that the stock price will likely fall in the longer run.

In the argument above, the two bold-faced portions play which of the following roles?

A. The first is evidence that supports a conclusion; the second is that conclusion

B. The first describes evidence that supports a conclusion; the second gives a reason for questioning that support.

C. The first describes the circumstance that the argument seeks to explain; the second provides evidence in support of the explanation that the argument seeks to establish.

D. The first is a premise that is accepted as true; the second is a conclusion that is contrary to the premise.

E. The first is a premise that is accepted as true; the second seeks to clarify the original premise.

gowrinkishore · Accepted Answer

Let's try to understand the structure of the argument:

Premise 1: the company has recently increased its dividend payments - Boldface 1 (BF1)
Intermediate conclusion: Shareholders are now relieved since increasing dividends generally boosts a company's stock price.

Premise 2: spending money on the payment of dividends often indicates that the company has exhausted more lucrative investments for its cash reserves and that the stock price will likely fall in the longer run - Boldface 2 (BF2)
Main Conclusion: The shareholders' optimism may be ill-founded.

Now let's look at the choices. 
A: BF2 is not the conclusion that BF1 supports. Incorrect.
C: BF2 is  the explanation  itself, and not evidence that supports it.
D: BF2 does not contradict the given premise BF1
E: BF1 is  the original premise  - BF2 is not clarifying the premise itself. It is trying to explain why a conclusion made based on BF1 is possibly incorrect.

This leaves us with the right answer B.

suryav · Answer

B.The first describes evidence that supports a conclusion; the second gives a reason for questioning that support.
BF1 doesn't support the conclusion.

pipe19 · Answer

Why is B the right answer? In what universe does the  fact  in BF1 support the conclusion??

Can someone pls elaborate on this.

vinzycoolfire · Answer

hi pipe19,
let me try to answer you.
the first boldface(BF1) says company is giving more dividends. this a premise or "FACT". the argument says that share holders think that it is a good sign and stock prices are going to increase. this is the conclusion. the second premise(the whole line along with BF2) states that the conclusion might be wrong because it might be a last ditch effort.
let us look at the options
 
a) The first is evidence that supports a conclusion; the second is that conclusion
Wrong , the conclusion here is that which is drawn by shareholders. i.e. increasing evidence boosts the stock price. so the second boldface is not the conclusion.

b) The first describes evidence that supports a conclusion; the second gives a reason for questioning that support.
right answer, accurately describes the scenario.

c) The first describes the circumstance that the argument seeks to explain; the second provides evidence in support of the explanation that the argument seeks to establish.
the first is not a circumstance, it is evidence. the evidence is never explained, it is just taken to form a conclusion and later BF2 is given which questions the validity of the conclusion.

d) The first is a premise that is accepted as true; the second is a conclusion that is contrary to the premise.
the first part is true. the second is not the conclusion, it is another premise which gives an alternate explanation for the premise.

e) The first is a premise that is accepted as true; the second seeks to clarify the original premise.
the first part is right. the second does not clarify the premise, rather it tries to clarify the conclusion drawn from the premise.

hope this helps

pipe19 · Answer

I see what you mean. Because there is a stated connection between BF1 and a premise that supports a conclusion you can say that BF1 supports this conclusion. Thanks!

mltr2018 · Answer

Quite similar to OG16 CR #105: https://gmatclub.com/forum/since-it-has-become-known-that-several-of-a-bank-s-top-executives-have-136001.html

Since it has become known  that several of a bank’s top executives have been buying shares in their own bank , the bank’s depositors, who had been worried by rumors that the bank faced impending financial collapse, have been greatly relieved. They reason that, since top executives evidently have faith in the bank’s financial soundness, those worrisome rumors must be false. Such reasoning might well be overoptimistic, however, since  corporate executives have been known to buy shares in their own company in a calculated attempt to dispel negative rumors about the company’s health.

In the argument given, the two boldfaced portions play which of the following roles?

(A) The first describes evidence that has been taken as supporting a conclusion; the second gives a reason for questioning that support.

(B) The first describes evidence that has been taken as supporting a conclusion; the second states a contrary conclusion that is the main conclusion of the argument.

(C) The first provides evidence in support of the main conclusion of the argument; the second states that conclusion.

(D) The first describes the circumstance that the argument as a whole seeks to explain; the second gives the explanation that the argument seeks to
establish.

(E) The first describes the circumstance that the argument as a whole seeks to explain; the second provides evidence in support of the explanation that the argument seeks to establish.

VKat · Answer

Hello,

Can you please suggest, what will be conclusion here?

Because here 2 scenarios are explained, one positive , one negative so i am not able to apply" therefore test " also.

sayantanc2k · Answer

In option B "a conclusion" refers to the conclusion of the shareholders who are relieved. The conclusion is that the company's stock price would now go up.

pratikpokharkar · Answer

Hi,
I have two queries. 1)Why option C is incorrect?? It aptly describe function of both BF.
2)Main conclusion of argument is "optimism is ill founded" then how first part of B can can support the conclusion??

CrackverbalGMAT · Answer

Hi Pratik

Let me try to answer your queries.

1) Why option C is incorrect?? It aptly describe function of both BF.

Let us examine what option (C) states about the second BF: "the second  provides evidence  in support of the explanation that the argument seeks to establish."

The second BF tries to provide an alternative hypothesis for what happens to a company's stock price when dividends are increased. As such, no  evidence  is provided in the second BF for any theories, making option (C) incorrect.

2) Main conclusion of argument is "optimism is ill founded" then how first part of B can can support the conclusion?

Option (B) does not state that the first BF supports  the conclusion of the argument , which you have correctly identified. It merely states that the first BF supports  a  conclusion, which is correct, as evidenced by the statement following the first BF: "Shareholders...are now relieved since increasing dividends generally boosts a company's stock price".

In other words, shareholders concluded that the share price of the company would increase based on the evidence of increased dividend payout.

Hope this clarifies.

sayan640 · Answer

KarishmaB   MartyMurray  Can you please explain why option C is wrong? Looks okay to me..

Posted from my mobile device

VerbalBot · Answer

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A large company has recently increased its dividend payment

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A large company has recently increased its dividend payment

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