A corporate consultant concludes that a Disney business unit deserves

QUESTION

A corporate consultant concludes that a Disney business unit deserves heavy investment because three of its four product lines are highly profitable and have high market share.

Which of the following, if true, most undermines this conclusion?
A) The product lines making high profits sell goods with lower prices than the goods sold by the product lines making lower profits.
B) The product lines making high profits are in high-growth industries.
C) The sales volume of the product line making lower profits is significantly higher than the sales volumes of any of the other product lines in the business unit.
D) The corporate consultant specializes in analysis but has never personally sold any of the products sold by the business unit.
E) Matrix models take market share into account when evaluating the potential of business units.

ANSWER

Answer: C
Explanation: C) The evidence here supports the notion that the business unit deserves heavy investment, but there are still holes in the argument. For starters, we don’t know anything about the growth rate of the business unit. Knowing that the growth rate is low or negative weakens this argument, but that’s not one of the choices. Instead, the correct answer points out a numbers flaw in the argument. Three out four sounds pretty good, but what if the unprofitable line were larger than the others? In that case, a large and unprofitable line might outweigh the other three, and so Choice C weakens the argument. Choice A talks about the price of the goods, which isn’t the issue here. The issue is the success of the division, and success is possible at higher price points as well as lower price points. Choice B strengthens the argument by making the unit sound even better. Choice D doesn’t matter because the selling expertise of the analyst isn’t the issue. The logic of the argument is the problem at hand. Choice E strengthens the argument by pointing out the relevance of market share.