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In this argument a consulting firm recommends the transfer of investments from Cola Locato Early Bird Coffee because, during the next 20 years, coffee demand will increasewhile cola demand will decrease. This prediction is based on the expectation that thenumber of older adults will significantly increase over the next 20 years, togetherwith statistics, reportedly stable for the past 40 years, indicating thatcoffee consumptionincreases with age while cola consumption declines with increasing age. For threereasons, this financial advice may not be sound. First,the argument assumes that relative supply conditions will remain unchanged over the next twenty years. However, the supply and cost of cola and coffee beans, as well as other costs of doing business as a producer of coffee or cola, may fluctuate greatlyover a long time period. These factors may affect comparative prices of coffee and cola,which in turn may affect comparative demand and the value of investments in coffeeand cola companies. Without considering other factors that contribute to the value ofa coffee or cola company, the firm cannot justify its recommendation. Secondly,the argument fails to account for the timing of the increase in coffee consumption.Perhaps the population will age dramatically during the next five years, thenremain relatively flat over the following 15 years. Or perhaps most of theincrease inaverage age will occur toward the end of the 20-year period. An investor hasmore opportunityto profit over the short and long term in the first scenario than in thesecond, assumingthe investor can switch investments along the way. If the second scenario reflectsthe facts, the firm's recommendation would be ill-founded. Finally,the firm unjustifiably relies on the studies that correlate coffee and cola consumptionwith age. The firm does not provide evidence to confirm the reliability of thestudies. Moreover, while the phrase "studies suggest" may appear tolend credibility to theseclaims, the phrase is vague enough to actually render the claims worthless, in theabsence of any information about them. In conclusion, the firm should not transfer investments from Cola Loca to Early BirdCoffee on the basis of this argument. To better evaluate the recommendation, we wouldneed more information about the study upon which it relies. We would also need more detailed projections of population trends during the next 20 years.
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