The XKP Corporation needs to move its headquarters to a new facility. It can either borrow money to buy a...
GMAT Critical Reasoning : (CR) Questions
The XKP Corporation needs to move its headquarters to a new facility. It can either borrow money to buy a small building or rent a building similar to what it would buy. The corporation will have to spend more on loan payments and interest this year if it buys instead of rents. But the amount will stay fixed from year to year, while rental rates will gradually increase over the years. The company is thus likely to borrow money to purchase a building, because ____________.
Which of the following most logically completes the passage?
Passage Analysis:
| Text from Passage | Analysis |
| The XKP Corporation needs to move its headquarters to a new facility. |
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| It can either borrow money to buy a small building or rent a building similar to what it would buy. |
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| The corporation will have to spend more on loan payments and interest this year if it buys instead of rents. |
|
| But the amount will stay fixed from year to year, while rental rates will gradually increase over the years. |
|
| The company is thus likely to borrow money to purchase a building, because ________. |
|
Argument Flow:
The argument starts by setting up XKP's relocation situation, then presents two options (buy vs rent). It shows that buying costs more initially but has fixed payments, while renting starts cheaper but costs increase over time. The argument concludes that XKP will likely buy and asks us to complete the reasoning.
Main Conclusion:
XKP Corporation will probably choose to borrow money and buy a building rather than rent one.
Logical Structure:
The premises establish a cost comparison over time - buying has higher upfront costs but stability, while renting has lower initial costs but increasing expenses. The conclusion follows that the long-term financial advantage makes buying the better choice, and we need to identify this reasoning pattern to complete the argument.
Prethinking:
Question type:
Logically Completes - We need to find the reasoning that logically explains why XKP would choose to buy despite higher initial costs
Precision of Claims
The argument presents specific cost patterns: buying costs more initially but stays fixed, while renting costs less initially but increases over time. The conclusion states XKP will likely buy.
Strategy
For logically completes questions, we need to find what reasoning bridge connects the premises to the conclusion. The premises show buying costs more initially but stays fixed, while renting costs increase over time. The conclusion is that XKP will buy. So we need reasoning that explains why the long-term fixed costs advantage outweighs the short-term higher costs.
This focuses on comparing interest rates between the new loan and existing loans, but this comparison is irrelevant to the buy vs. rent decision that XKP faces. Even if the new loan has a lower interest rate than old loans, this doesn't explain why buying is better than renting, since we're not told anything about XKP's existing loan rates or how they relate to rental costs.
This suggests XKP anticipates needing larger facilities due to growth. However, this actually argues against buying the current small building, since if they expect to outgrow it, they'd need to move again soon. This contradicts the logic of choosing a fixed-cost option for long-term savings and doesn't complete the reasoning about cost advantages.
This states XKP would be responsible for maintenance costs even if renting. If true, this would make renting even more expensive and less attractive, but this contradicts the passage's premise that renting costs less initially. The argument already establishes the cost comparison, so this additional maintenance responsibility doesn't fit the logical flow.
This suggests XKP expects to rent additional smaller facilities for operations. This doesn't explain why they'd choose to buy their headquarters rather than rent it. Having additional rental commitments doesn't logically connect to the buy vs. rent decision for the headquarters building based on the cost pattern described.
This states that XKP would keep the purchased building for more than twenty years. This perfectly completes the logical reasoning - if XKP plans to stay for over twenty years, the fixed loan payments will eventually become much cheaper than the gradually increasing rental rates over that long time period. This time horizon justifies choosing higher initial costs for long-term savings, making the 'thus likely to buy' conclusion logical and well-supported.