Logical reasoning PrepTest 102 · Section 3 · Question 13

Flawed

Strengthen with Necessary Premise Questions

Companies can sell debt to debt collectors, but they get only $.15 on the dollar, so they’d recover more money by collecting the debts on their own.

The conclusion here is comparative - it looks at the amount of money that a company would get through two courses of action. The first course of action? Selling outstanding bills to debt collectors. This nets them $.15 for every dollar - an $.85 (or 85%) loss per dollar. The course of action recommended by the argument? Collect that debt on their own. If they collect it, then they’d get 100%. But that’s ignoring two things. First, it’s unlikely that they’d be able to collect every debt. Maybe people died, or they’re bankrupt, or they just don’t have the money. Maybe they couldn’t be found, or they used fraudulent information! And second, it ignores the cost of collecting that debt. Presumably, it’s outstanding because people aren’t willing to pay it. So it’s likely that it would require time to find the people, and then to use whatever means is required to get them to pay the debt. That might involve investigators and costly lawsuits. For example, it might cost $50 to collect a $51 debt, and the company would be better off just selling it for $.15 on the dollar ($7.50). The argument assumes that the percent of money actually collected and the cost of doing so wouldn’t outweigh the losses that they see in just selling the debt to debt collectors, so let’s find an answer reflecting that assumption.