PrepTest 102, Section 3, Question 13
A company with long-outstanding bills owed by its(63 more words not shown)
The argument depends on the(2 more words not shown)
- Aa company that(24 more words not shown)
- Bthe cost to(26 more words not shown)
- Ccollection agencies that(23 more words not shown)
- Dat least 15(24 more words not shown)
- Eunless most of(18 more words not shown)
Reading the argument
Fifteen cents on the dollar sounds terrible. But how much would the company collect on its own?
Suppose a water company is owed $100 and a collection agency offers $15 for that debt. The water company can take the $15 and let the agency worry about getting customers to pay. Or it can try to collect the $100 itself. If those customers still refuse to pay, doing the work itself could leave the company with even less money.
The argument treats a small recovery as a reason to reject the agency. That only works if the company's own recovery would be better. We need to compare the two options, not just react to how little the agency offers.
What we’re looking for
The question asks for a necessary assumption. Look for something the company needs to be true for collecting its own bills to reduce its losses.
Working the answers
- ACorrect
The company needs to collect more than 15 percent of the amount owed. Otherwise, it could get at least as much by accepting the agency's payment.
That does not mean collecting more than 15 percent automatically makes the company's approach worthwhile. Collection also costs money. But if the company cannot even bring in more than the agency would pay, collecting the bills itself has no financial advantage to work with. This is a requirement, even though it is not the whole argument.
- B
Why must the collection costs stay below 15 percent of the bills? The answer depends on how much the company collects.
Suppose the company collects $90 of every $100 owed and spends $16 doing so. It keeps $74, much more than the agency's $15. Its costs exceed 15 percent, and pursuing the bills itself still makes sense. The argument does not need this particular limit on costs.
- C
The company receives 15 percent regardless of how well the agency later does. If the agency collects 85 percent, that may make the agency's business look profitable, but it does not tell us what the original company could collect. We still need that comparison before deciding which option reduces the company's losses.
- D
Fifteen percent of the customers is not necessarily 15 percent of the money. A few customers could owe most of the outstanding debt. If they pay, the company could collect more than 15 percent of the dollars even though fewer than 15 percent of its customers pay.
The argument needs a claim about how much the company can recover. It does not require this particular fraction of customers to pay.
- E
The issue is how to handle overdue bills, not what makes the entire company profitable. Perhaps almost all customers pay promptly and these overdue bills are a small part of the business. We can compare ways to collect those bills without assuming that the company's long-term profitability requires most of the company’s customers to pay.
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