Skywalker18 wrote:
1. The primary purpose of the passage is to
(A) criticize the motives of those who use risky financial strategies -- Incorrect
(B) challenge a common perception of financiers -- incorrect - no common perception has been challenged
(C) describe the evolution and application of a certain financial device -- hold this --
(D) explain the popularity of leveraged buyouts during a certain period -- though this is true, it is not the main purpose
(E) argue that leveraged buyouts are detrimental to overall financial health --
Many of the main corporate figures of the 1980s saw spectacular rises and, perhaps inevitably, spectacular falls as they abused the leveraged buyout as a means to extraordinary financial gain.
When the deals turned out to be much riskier in life than on paper, the lenders turned away from the buyouts and returned to the notion that borrowers must possess adequate collateral of their own.
I was in fix between C and E and ended up choosing option E . Can you please explain why C is the correct option?
AjiteshArun ,
GMATNinja ,
mikemcgarry ,
egmat ,
sayantanc2k,
DmitryFarber ,
MagooshExpert -- please help
Hi
Skywalker18!
Happy to help
On the GMAT, always beware of answers that are very black-and-white. If we look through the passage, we see many indications that leveraged buyouts are BOTH good and bad for financial health:
it came to represent in the public imagination not only
corporate ingenuity and success, but
also excess and greed.
Many of the main corporate figures of the 1980s saw
spectacular rises and, perhaps inevitably,
spectacular falls as they abused the leveraged buyout as a means to
extraordinary financial gain.
The benefit of the leveraged buyout is obviousThe drawbacks, however, became apparent only after the fact
So the reality is a lot more nuanced than simply saying that leveraged buyouts are 100% bad financial decisions. According to the passage, there were potential positive results of leveraged buyouts -- they were just overall
risky (not necessarily always bad). Choice C fits perfectly here, but choice E is just too extreme to fit the passage.
Hope that helps!
-Carolyn