PrepTest 147, Section 4, Question 2
Acme's bank loan must be immediately repaid in(67 more words not shown)
The argument requires the assumption(1 more words not shown)
- AAcme's earnings for(9 more words not shown)
- BAcme has other(5 more words not shown)
- Clast year is(9 more words not shown)
- DAcme's earnings for(8 more words not shown)
- EAcme would be(14 more words not shown)
Reading the argument
How far did the earnings fall after the correction? Reporting $100 million when the company actually earned $90 million would be an overstatement. But $90 million is still comfortably above the $1 million threshold.
What we’re looking for
For the required assumption, follow the chain: earnings below $1 million force immediate repayment, and immediate repayment forces bankruptcy. We need last year's accurate earnings to fall below the threshold that starts that chain. Admitting an overstatement isn't the same as admitting earnings below $1 million.
Working the answers
- ACorrect
This supplies the missing fact: last year's actual earnings were below $1 million. The repayment rule now applies, and the passage tells us immediate repayment would force bankruptcy. Without this threshold-crossing assumption, the correction could leave Acme well above $1 million, as in the $100 million versus $90 million example.
- B
Other debts aren't needed. We're expressly told that immediate repayment of this loan would force Acme to declare bankruptcy. That consequence could follow whether Acme has several other debts or no other debts at all. The question is whether the earnings condition triggers repayment.
- C
The argument doesn't need a history of overstated earnings. Last year alone could put Acme below the required threshold. Perhaps the earlier reports were accurate and only last year's accounting was wrong. C adds other years without supplying the missing size of last year's correction.
- D
This shifts to the current year. The argument bases its conclusion on the admission about last year's earnings. Those earnings could trigger repayment even if the current year's earnings look strong. We need to know what the corrected past figure is, not predict a new decline this year.
- E
This would make avoiding repayment a way to avoid bankruptcy. But the argument doesn't require the loan to be Acme's only possible route to bankruptcy. Another problem could also threaten the company, while immediate repayment would still force bankruptcy as stated. E doesn't answer the question we need resolved: did last year's actual earnings fall below $1 million?
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