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- Thu Apr 14, 2016 11:12 am
#23036
Complete Question Explanation
Assumption. The correct answer choice is (A)
The stimulus explains that companies sometimes turn long-outstanding bills over to collections agencies, but those agencies only pay 15% of the total amount of those bills. The stimulus concludes that if a company is interested in reducing losses, the company should pursue collections on its own.
The reasoning is that the company can do better than to collect 15% on the bills, which involves a number of assumptions about factors such as cost and the amount that the company could itself collect. You are asked to identify a necessary assumption, so you need to find a choice that addresses one of the many neglected factors.
Answer choice (A): This is the correct answer choice. For the company to even have a chance at doing better than a 15% payment from creditors, the company must first be able to collect more than 15% on its own, especially since the costs will be higher if the company pursues those collections on its own.
Answer choice (B): If the costs were more than 15% of the bills, a company still might collect so much more than 15% on its own that it offsets the costs (for example, if a company on its own collected 80% of what was due, and its costs were 50% of what is due, it would still be much better off than were it to use an agency).
Answer choice (C): Immediately, this choice is incorrect because you cannot be sure that information about collections agencies transfers well to the companies. Alternately, this choice implies that collections agencies are able to collect 85% of the outstanding bills. Since the companies only currently get 15%, they do not need 85% to be better off. The only thing you can be sure of is that they would need more than 15% to be better off.
Answer choice (D): Even if every single customer must be pursued to obtain payment, the company might still get more than 15% by pursuing collections on its own. This response is unnecessary and incorrect. Also, this choice is not even very logical support, because the customers who tend to pay could be the ones who owe very little, so even if 15% of delinquent customers would pay on their own, that does not necessarily mean those customers would account for 15% of the money that all the company's delinquent customers owe the company.
Answer choice (E): The stimulus concerns only delinquent accounts, and never describes what percent of customers tend to be delinquent. This choice, which discusses the proportion of customers that must pay for the company to be profitable, is off-topic and incorrect.
Assumption. The correct answer choice is (A)
The stimulus explains that companies sometimes turn long-outstanding bills over to collections agencies, but those agencies only pay 15% of the total amount of those bills. The stimulus concludes that if a company is interested in reducing losses, the company should pursue collections on its own.
The reasoning is that the company can do better than to collect 15% on the bills, which involves a number of assumptions about factors such as cost and the amount that the company could itself collect. You are asked to identify a necessary assumption, so you need to find a choice that addresses one of the many neglected factors.
Answer choice (A): This is the correct answer choice. For the company to even have a chance at doing better than a 15% payment from creditors, the company must first be able to collect more than 15% on its own, especially since the costs will be higher if the company pursues those collections on its own.
Answer choice (B): If the costs were more than 15% of the bills, a company still might collect so much more than 15% on its own that it offsets the costs (for example, if a company on its own collected 80% of what was due, and its costs were 50% of what is due, it would still be much better off than were it to use an agency).
Answer choice (C): Immediately, this choice is incorrect because you cannot be sure that information about collections agencies transfers well to the companies. Alternately, this choice implies that collections agencies are able to collect 85% of the outstanding bills. Since the companies only currently get 15%, they do not need 85% to be better off. The only thing you can be sure of is that they would need more than 15% to be better off.
Answer choice (D): Even if every single customer must be pursued to obtain payment, the company might still get more than 15% by pursuing collections on its own. This response is unnecessary and incorrect. Also, this choice is not even very logical support, because the customers who tend to pay could be the ones who owe very little, so even if 15% of delinquent customers would pay on their own, that does not necessarily mean those customers would account for 15% of the money that all the company's delinquent customers owe the company.
Answer choice (E): The stimulus concerns only delinquent accounts, and never describes what percent of customers tend to be delinquent. This choice, which discusses the proportion of customers that must pay for the company to be profitable, is off-topic and incorrect.