In the United States profits sales of Grainco's biggest selling product, cornflakes, have dropped by 30 percent over the last 3 years. During this same time, the value of a share of Grainco stock rose by over 20 percent. This is puzzling because the value of a stock usuallu decreases when a company's sales decrease.
Which of the following, if true during the last 3 years, most helps to explain why the value of a share of Grainco stock moved in the way that it did?
A. Severe drought in the Midwest destroyed a large percentage of the corn crop, forcing Grainco to buy less corn.
B. Grainco closed a food processing plant in a locality that offered cheap labor and low taxes.
C. Profits from Grainco oatmeal, which account for a large part of Grainco's total sales and profits, increased dramatically in both the foreign and domestic markets.
D. Grainco employees formed a union that helped them get higher salariesand increased medical benefits.
E. Several articles in prominent business publications listed Grainco as a company that has poor management.
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2 comments:
Statement A. might explain the loss of profits in cornflakes due to a corn price rise caused by scarcity.
Statement B. could contribute to a loss of economical efficiency and thus a share devaluation, not the opposite.
Statement C. gives a very sound explanation to the share's price behaviour, in spite of the loss of profits in the "biggest selling product". According to this statement, oatmeal is the responsible for most of the total profits - and this product's profits experienced dramatic increase in the period. This solves the apparent paradox.
Let's check the other statements, though we might already have a satisfactory answer.
Statement D. explains salary rise, not stock's...
Statement E. reports a possible cause for stock devaluation, not for stock rising.
So, option C. should be adopted.
Great blog.
New regular visitor here.
Thanks and congrats.
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