GMAT - Graduate Management Admission Test

The following appeared in a memorandum to the planning department of an investment firm. �Costs have begun dropping for several types of equipment currently used to convert solar energy into electricity. Moreover, some exciting new technologies for converting solar energy are now being researched and developed. Hence we can expect that solar energy will soon become more cost efficient and attractive than coal or oil as a source of electrical power. We should, therefore, encourage investment in Solario, a new manufacturer of solar-powered products. After all, Solario�s chief executive was once on the financial planning team for Ready-to- Ware, a software engineering firm that has shown remarkable growth since its recent incorporation.� Discuss how well reasoned... etc.

In this argument the planning department of investment firm reaches the conclusion that the firm should encourage investment in Solario�a new manufacturer of solar-powered products. The basis for this recommendation is the expectation that solar energy will soon become more cost efficient and attractive than other forms of energy. This expectation is based on recent declines in the cost of equipment used to convert solar energy into electricity and on new technologies that are being developed for this purpose. An additional reason give in support of this recommendation is that Solario�s chief executive was a member of the financial planning team for a company that has shown remarkable growth since its recent incorporation. While this argument has some merit, there are a few assumptions that deserve attention.

In the first place, the author assumes that the previous business experience of Solario�s chief executive will be an asset in the development of the new company. While this may be the case, the fact that the two companies deal in vastly different products is cause for some concern. The executive�s expertise in the software-engineering business will not necessarily be applicable to the solar-powered products business.

In the second place, the author assumes that the major impediment to the use of solar-powered products is the cost of solar energy and that, given a choice, consumers would prefer products powered by solar energy over those powered by energy derived from coal or oil. On the face of it, this assumption seems acceptable; but it may be that there are other factors besides cost that make solar energy less desirable than other forms of energy.

In conclusion, this argument is convincing. To strengthen the argument additional evidence indicating consumer preference for solarpowered products over products powered by conventional forms of energy would be desirable.