求答案及解析

lonelyorchid · 发表于 2011-1-1 18:46:00

Companies considering new cost-cutting manufacturing process often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.
Which of the following, assuming that each is a realisctic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?
A. The costs of materials required by the new process might not be known with certainty.
B. In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
C. Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
D. Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
E. The period of year chosen for averaging our the cost of the investment might be somewhat longer or shorter, thus affecting the result.

sdcar2010 · 发表于 2011-1-1 22:50:31

Both A and D look attractive.

A) says the costs of materials required for the new process are not known for sure. This does present some problems for the comparison between investing and not investing in the new process. However, one can give an educated guess of the range of costs thereof and compare the best and worst scenarios to get a sense of the plan.

D), on the other hand, introduces a new problem -- competitors! Their involvement might drastically change the assumed constant selling prices and share of market when the companies using the aforementioned method to evaluate the benefits of NOT making the investment. Thus the evaluated financial benefit of the new process, thus calculated using the method, is INCORRECT, because its benchmarks are not CONSTANT when not making the investment.

So D is the best choice.

lonelyorchid · 发表于 2011-1-2 13:57:54

The original text says "compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant."
The bold part suggests that none of the cost, the selling prices and the market share would change no matter the project is carried or not. So in which aspect could "the financial benefit of new manufacturing processes" reflected, if all critical factors of financial benefit are suggested invariable?

sdcar2010 · 发表于 2011-1-2 21:42:05

LS, your understanding is wrong.

compare [the projected results of making the investment] against [the alternative of not making the investment with costs, selling prices, and share of market remaining constant].

Compare A against B.

Only in B would none of the cost, the selling prices and the market share change.

lonelyorchid · 发表于 2011-1-3 00:51:08

So D is indicating that no matter new project is adopted or not by a company, the introduction of new project in the competitors would change the market share of the company, thus no constancy in the company's market share.

Is my understanding of choice D correct?

evelyn205205 · 发表于 2011-7-4 15:00:39

Both A and D look attractive.

A) says the costs of materials required for the new process are not known for sure. This does present some problems for the comparison between investing and not investing in the new process. However, one can give an educated guess of the range of costs thereof and compare the best and worst scenarios to get a sense of the plan.

D), on the other hand, introduces a new problem -- competitors! Their involvement might drastically change the assumed constant selling prices and share of market when the companies using the aforementioned method to evaluate the benefits of NOT making the investment. Thus the evaluated financial benefit of the new process, thus calculated using the mehtod, is INCORRECT, because its benchmarks are not CONSTANT when not making the investment.

So D is the best choice.

-- by 会员 sdcar2010 (2011/1/1 22:50:31)

How about B?
The interest rates affect companies in doing business.

QueenG · 发表于 2012-9-9 21:01:47

Well, I chose B too before I see 'sdcar's expalinations. I chose B because I didnt really understand the meaning of D considering " Competitors" as new items. Comparing to D, which leads to the fail of the investment, B only leads to waste of money. The question said choose the most serious disadvantage and D is more serious.

That's what I think.

Thanks sdcar!

求答案及解析

confusion of understanding the narration

所属分类: GMAT考试

正在浏览此版块的会员 ()