GMAT - Graduate Management Admission Test

"While trucking companies that deliver goods pay only a portion of highway maintenance costs and no property tax on the highways they use, railways spend billions per year maintaining and upgrading their facilities. The government should lower the railroad companies� property taxes, since sending goods by rail is clearly a more appropriate mode of ground transportation than highway shipping. For one thing, trains consume only a third of the fuel a truck would use to carry the same load, making them a more cost-effective and environmentally sound mode of transport. Furthermore, since rail lines already exist, increases in rail traffic would not require building new lines at the expense of taxpaying citizens."

Discuss how well reasoned... etc.

The conclusion of this editorial is that the government should lower property taxes for railroad companies. The first reason given is that railroads spend billions per year maintaining and upgrading their facilities. The second reason is that shipping goods by rail is costeffective and environmentally sound. This argument is unconvincing for several reasons. First of all, the argument depends upon a misleading comparison between railroad and truck company expenditures.

In this argument a consulting firm recommends the transfer of investments from Cola Loca to Early Bird Coffee because, during the next 20 years, coffee demand will increase while cola demand will decrease. This prediction is based on the expectation that the number of older adults will significantly increase over the next 20 years, together with statistics, reportedly stable for the past 40 years, indicating that coffee consumption increases with age while cola consumption declines with increasing age. For three reasons, this financial advice may not be sound.

First, the argument assumes that relative supply conditions will remain unchanged over the next twenty years. However, the supply and cost of cola and coffee beans, as well as other costs of doing business as a producer of coffee or cola, may fluctuate greatly over a long time period. These factors may affect comparative prices of coffee and cola, which in turn may affect comparative demand and the value of investments in coffee and cola companies. Without considering other factors that contribute to the value of a coffee or cola company, the firm cannot justify its recommendation. Secondly, the argument fails to account for the timing of the increase in coffee consumption. Perhaps the population will age dramatically during the next five years, then remain relatively flat over the following 15 years. Or perhaps most of the increase in average age will occur toward the end of the 20-year period. An investor has more opportunity to profit over the short and long term in the first scenario than in the second, assuming the investor can switch investments along the way. If the second scenario reflects the facts, the firm�s recommendation would be ill-founded.

Finally, the firm unjustifiably relies on the studies that correlate coffee and cola consumption with age. The firm does not provide evidence to confirm the reliability of the studies. Moreover, while the phrase �studies suggest� may appear to lend credibility to these claims, the phrase is vague enough to actually render the claims worthless, in the absence of any information about them. In conclusion, the firm should not transfer investments from Cola Loca to Early Bird Coffee on the basis of this argument. To better Page numbers AWA evaluate the recommendation, we would need more information about the study upon which it relies. We would also need more detailed projections of population trends during the next 20 years.