Hi, there. I'm happy to help with this.
First, the original question: 2) In a leveraged buyout, investors borrow huge sums of money to buy companies, hoping to pay off the debt by using the company's earnings and to profit richly by the later resale of the companies or their divisions.
A. by using the company's earnings and to profit
B. by using the companies' earnings and by profiting
C. using the companies' earnings and profiting
D. with the company's earnings, profiting
E. with the companies' earnings and to profit
First of all, you are perfectly right: company's
refers to something belonging to one company, and companies'
refers to something belonging to more than one company. Absolutely true.
Without even delving into the singular/plural thing, notice we could deduce the correct answer from (a) completing the correct parallel structure --- two infinitives "to pay" // "to profit", and (b) the idiomatic usage "paying with" something, not "paying by using" something --- I pay with money, I don't pay by using money. Just those two alone are enough to isolate answer E.
Nevertheless, you ask an excellent question. How do we know for a fact that we are talking about plural companies at that point in the sentence?
Well, first of all, the first part of the sentence mentions the plural --- "buying companies". If the sentence were going to switch from plural to singular, it would have to somehow signal that shift. For example: "Every day I meet dozens of new people, and I ask each one
about his . . . " The word "each" is a typically way to signal that the attention has shifted from plural to singular. We have no such signal here.
More important -- when companies are mentioned again toward the end of the sentence --- "resale of the companies" --- it's plural. If company is plural before
the underlined portion and plural after
the underline portion, it has to be plural in the underlined portion. The GMAT simply does not swap back and forth from singular to plural like that in a single sentence without practically renting billboard space to advertise the change.
Also, think about the real world scenario. If I buy one company in a leveraged buyout, I use that one company's earnings to pay my debt. If I buy fifteen companies, I use the earnings of all 15 companies
to pay my debt. (Perhaps you aren't old enough to remember the feeding frenzy of leveraged buyouts in the 1980s.) There is nothing incongruous in discussing "companies' earnings", especially if one person is gobbling up the earnings of several companies at once.
OK, does all that answer you question? Does that all make sense? Please let me know if you have any questions.
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