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03 Apr 2019, 06:39
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D
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Difficulty:
25%
(medium)
Question Stats:
77% (02:03) correct
23%
(02:20)
wrong
based on 190
sessions
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The Southfork Steel Company is in trouble. Since 1960 it has made guaranteed payments to retirees out of a pension fund paid into by current employees as a percentage of their salaries. The restructuring of the Southfork workforce, however, has meant that fewer employees are now needed to produce the same amount of work as in the days of the retired employees. Since current employees are unwilling to pay a larger percentage of their salaries into the pension system than their predecessors did, the pension fund will inevitably go bankrupt.Which of the following, if true, casts the most doubt on the conclusion in the passage that the pension fund will inevitably go bankrupt?
A. The pension fund is invested in a conservative portfolio of bonds and money market funds that perform, on average, slightly better than inflation.
B. Financial analysts have determined that, with current levels of payments into and out of the plan, the pension fund will remain solvent for at least another seven years.
C. If the company is bought or goes out of business, the payments to retirees from the pension funds are likely to become subject to arbitration by either the new owners or the bankruptcy trustees, in which case the “guaranteed” payments could be readjusted to lower levels, or possibly terminated.
D. The restructuring of the workforce has dramatically increased the efficiency of steel production at Southfork, resulting in substantially higher revenues per employee than in the past, and consequently much higher salaries.
E. Although the modern era is referred to as a “postindustrial” age, the worldwide demand for steel has never been higher.
Source: McGraw-Hill's GMAT
Difficulty Level: 600
Difficulty Level: 600
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03 Apr 2019, 11:18
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Conclusion - the pension fund will inevitably go bankrupt.
Pre-think - Author is assuming that the pension fund paid by current employees is not invested anywhere else and kept in the bank without any interests on the pension amount.
Option A tells us that the pension fund is invested in the portfolio of bonds and money market. Hence the pension fund will not go bankrupt.
A weakens the conclusion
A is the answer.
Pre-think - Author is assuming that the pension fund paid by current employees is not invested anywhere else and kept in the bank without any interests on the pension amount.
Option A tells us that the pension fund is invested in the portfolio of bonds and money market. Hence the pension fund will not go bankrupt.
A weakens the conclusion
A is the answer.
04 Apr 2019, 14:31
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CR is not my strong suit but here goes...
Conclusion: Since current employees are unwilling to pay a larger percentage of their salaries into the pension system than their predecessors did, the pension fund will inevitably go bankrupt.
A. The pension fund is invested in a conservative portfolio of bonds and money market funds that perform, on average, slightly better than inflation.
The fund is invested in a portfolio of bonds and funds that perform better than inflation, but what it the state of inflation? You have to make assumptions that can lead you astray so I'm trashing this option.
B. Financial analysts have determined that, with current levels of payments into and out of the plan, the pension fund will remain solvent for at least another seven years.
and what will happen after the 7 years? It leaves the door open for bankruptcy which would strengthen the argument, thus this option is incorrect.
C. If the company is bought or goes out of business, the payments to retirees from the pension funds are likely to become subject to arbitration by either the new owners or the bankruptcy trustees, in which case the “guaranteed” payments could be readjusted to lower levels, or possibly terminated.
Same as B, it leaves the door open for bankruptcy so incorrect.
D. The restructuring of the workforce has dramatically increased the efficiency of steel production at Southfork, resulting in substantially higher revenues per employee than in the past, and consequently much higher salaries.
The wages are higher thus the current employees will not contribute a bigger percentage of their salary, just as desired, so the pension will still remain funded. Correct!
E. Although the modern era is referred to as a “postindustrial” age, the worldwide demand for steel has never been higher.
Who knows how the higher demand is going to impact current employees thus the funding of the pensions. Incorrect.
Conclusion: Since current employees are unwilling to pay a larger percentage of their salaries into the pension system than their predecessors did, the pension fund will inevitably go bankrupt.
A. The pension fund is invested in a conservative portfolio of bonds and money market funds that perform, on average, slightly better than inflation.
The fund is invested in a portfolio of bonds and funds that perform better than inflation, but what it the state of inflation? You have to make assumptions that can lead you astray so I'm trashing this option.
B. Financial analysts have determined that, with current levels of payments into and out of the plan, the pension fund will remain solvent for at least another seven years.
and what will happen after the 7 years? It leaves the door open for bankruptcy which would strengthen the argument, thus this option is incorrect.
C. If the company is bought or goes out of business, the payments to retirees from the pension funds are likely to become subject to arbitration by either the new owners or the bankruptcy trustees, in which case the “guaranteed” payments could be readjusted to lower levels, or possibly terminated.
Same as B, it leaves the door open for bankruptcy so incorrect.
D. The restructuring of the workforce has dramatically increased the efficiency of steel production at Southfork, resulting in substantially higher revenues per employee than in the past, and consequently much higher salaries.
The wages are higher thus the current employees will not contribute a bigger percentage of their salary, just as desired, so the pension will still remain funded. Correct!
E. Although the modern era is referred to as a “postindustrial” age, the worldwide demand for steel has never been higher.
Who knows how the higher demand is going to impact current employees thus the funding of the pensions. Incorrect.
