Company treasurer: Even if the dividend payments that companies make to their shareholders were to be taxed at a higher...
GMAT Two Part Analysis : (TPA) Questions
Company treasurer: Even if the dividend payments that companies make to their shareholders were to be taxed at a higher rate, I believe that our stock price would not be negatively affected. Dividend-paying stocks like ours have performed exceptionally well during the last few years, providing investors with greater returns than most other investment options. As the population ages, there will be even more demand for the income provided by dividend-paying stocks. Although retail investors will be greatly affected by a higher dividend tax, it is important to recognize that the majority of our company's stock is owned by institutional investors that are exempt from dividend taxation.
According to the information provided, the treasurer's primary focus is to discuss the potential effect that an increase in the _1 could have on the 2_. Select for 1 and for 2 the options that complete the statement in the manner that most accurately reflects the given information.
Phase 1: Owning the Dataset
Argument Analysis Table
| Passage Statement | Analysis & Implications |
| "Even if the dividend payments that companies make to their shareholders were to be taxed at a higher rate, I believe that our stock price would not be negatively affected." |
|
| "Dividend-paying stocks like ours have performed exceptionally well during the last few years" |
|
| "As the population ages, there will be even more demand for the income provided by dividend-paying stocks" |
|
| "Although retail investors will be greatly affected by a higher dividend tax, it is important to recognize that the majority of our company's stock is owned by institutional investors that are exempt from dividend taxation" |
|
Key Patterns Identified
- The treasurer's argument flows from thesis to supporting evidence
- The primary discussion centers on dividend tax rate increases and their potential impact on stock price
- The treasurer provides multiple reasons why this impact would be minimal
- The ownership structure (institutional vs retail) is crucial to the argument
Phase 2: Question Analysis & Prethinking
Understanding What Each Part Asks
The question asks us to identify what the treasurer's primary focus is discussing:
- Part 1: What could potentially increase?
- Part 2: What could be affected by that increase?
- Relationship: Part 1 causes potential change in Part 2
Valid Inferences (Prethinking)
Based on the opening statement, we can definitively conclude:
- Part 1 must be: Something related to taxation that could increase → dividend tax rate
- Part 2 must be: What the treasurer claims won't be negatively affected → stock price
The treasurer explicitly states this relationship in the first sentence!
Phase 3: Answer Choice Evaluation
Analyzing Each Option
| Answer Choice | What It Claims | Could Work for Part 1? | Could Work for Part 2? |
| company's stock price | The value of company shares | No - this is what could be affected, not what increases | Yes - treasurer says this won't be negatively affected |
| dividend tax rate | The percentage tax on dividends | Yes - treasurer discusses "taxed at a higher rate" | No - this is what increases, not what's affected |
| number of institutional investors | Count of tax-exempt shareholders | No - not discussed as increasing | No - not the focus of impact |
| tax paid by institutional investors | Tax amount from institutions | No - they're exempt from dividend tax | No - can't be affected if they're exempt |
| company's dividend payments | Amount paid to shareholders | No - tax rate increases, not payment amount | No - treasurer discusses stock price impact |
Answer Selection
Part 1 (what could increase): dividend tax rate
- The treasurer explicitly discusses dividend payments being "taxed at a higher rate"
- This is the only option that makes sense as something that could increase
Part 2 (what could be affected): company's stock price
- The treasurer directly states "our stock price would not be negatively affected"
- This is clearly what the treasurer is concerned about protecting
Verification
Reading the completed statement: "the treasurer's primary focus is to discuss the potential effect that an increase in the dividend tax rate could have on the company's stock price."
This perfectly captures the treasurer's opening thesis and the entire focus of the passage!
Common Traps Avoided
- We didn't assume dividend payments would increase (they're not discussed as changing)
- We didn't focus on institutional investors as the primary topic (they're supporting evidence)
- We stuck to what the treasurer explicitly states as the main concern