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# In a leveraged buyout, investors borrow huge sums of money to buy

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Director
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Updated on: 07 Nov 2018, 03:03
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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

Investment bankers, corporate executives and Wall Street firms have all jumped into the lucrative game staked out by such well-known firms as Kohlberg Kravis Roberts & Company and Forstmann Little & Company. In a leveraged buyout, known as an L. B. O., investors borrow huge sums of money to buy companies, hoping to pay off the debt with the companies' earnings and to profit richly by the later resale of the companies or their divisions.

Originally posted by joemama142000 on 24 Nov 2005, 18:55.
Last edited by Bunuel on 07 Nov 2018, 03:03, edited 5 times in total.
Renamed the topic and edited the question.
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24 Jan 2012, 12:27
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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.

Mike
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28 Feb 2009, 11:39
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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.

Explanation:
-----------------------
A. by using the company's earnings and to profit ---> Incorrect use of apostrophe in the word company's.
B. by using the companies' earnings and by profiting ---> Incorrect. Not parallel in structure.
C. using the companies' earnings and profiting ---> Incorrect. Not parallel in structure.
D. with the company's earnings, profiting ---> Incorrect use of apostrophe in the word company's.
E. with the companies' earnings and to profit ---> Correct. It uses the apostrophe in the correct place to indicate that companies are involved and NOT just a company. It is also parallel in structure (...to pay off the debt... ...to profit richly...)

JohnLewis1980 has given the correct explanation for the second part.
-----------------------

Clearly option E.

Hope that helps.

Regards,
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28 Feb 2009, 07:55
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ritula wrote:
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

Hi mates,

IMO E

To maintain //ism, the last part of the answer should be "to profit", therefore just A and E left

"hoping to pay [...] and to profit [...]

Now, between A and E, E seems to be simpler than A, so, E

OA and Source?

Cheers
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04 Jun 2009, 00:04
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It's E. Because the investors "hope" to pay off the debt and profit richly. Also observe the 3/2 split - eliminate company's because the parent clause is talking about companies.
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18 Oct 2009, 21:44
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investors borrow huge sums of money to buy companies, hoping to pay off the debt with the companys' earnings and to profit richly by the later resale of the companies or their divisions.

The inverstors hope to pay off... and to profile richly later is correct parallelism.

investors borrow huge sums of money to buy companies, hoping to pay off the debt by using the company's earnings and by profiting by the later resale of the companies or their divisions.
If you make "earnings" and "profiting" parallel, it will mean that the investors hope to pay off debt by selling the company later. Moreover "by profiting" makes the setence meaning awakward. If inversters hoped to pay off the debt using the profit the correct sentence should have been-

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 by the profit of later resale of the companies or their divisions.
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04 Dec 2009, 05:43
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I choose E

E : In a leveraged buyout, investors borrow huge sums of money to buy companies, hoping to pay off the debt with the companies' earnings and to profit richly by the later resale of the companies or their divisions.

The question falls in parallelism category. 'to pay off' is parallel ' to profit' . ' with the companies' earnings' is parallel to ' by the later resale', they have same structure, preposition + N.
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07 Dec 2009, 02:59
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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

IMO E ..... 'to profit' parallel to 'to buy'
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20 May 2011, 21:18
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The issue is parallelism and possessive form of a plural.
A-author is taking about several companies;hence,we have have to use plural possessive of companies,not company possessive..[/incorrect]]
B-issue remain in possessive realm with parallelism issue-[color=#BF0000][/incorrect]
C-possessive issue is solved ,but parallelism issue remain. comparing earning to profiting [color=#BF0000]incorrect

D-Ditto as one,participle is incorrectly used there[color=#BF0000][/incorrect]
E-solve both issues and parallel To pay .....To profit.......correct
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30 Jul 2011, 09:07
The speculators or those heavy borrowers of money for leveraged buy-outs do so in the hope 1) to close the loans with the profits tht the companies earn and 2) then to profit hugely by the sale of those companies. Thus there are two functions of their hoping (to pay off and to profit), which are required to be //. Any choice using profiting is therefore grammatically incorrect. Only A and E cross the mark. In A, ‘the company’s’ is grammatically wrong since it is singular. We need the plural possessive ‘the companies’. E is right.

This is as simple as that IMO The strategy is to simplify the issue to the core rather than complicate.
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24 Jan 2012, 10:17
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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

please correct my understanding company's is an apostrophe form for the singular company. companies is plural..if this is the case why is option E right.. I understand company's earnings is stressing on a how the earnings of a company can be used to pay off debts

Thanks
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28 Oct 2012, 22:09
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guys for the answer to be either A or E, should'nt the construction be a bit different; should'nt the construction ".....earnings, and to profit.."
By using the commas, the parallelism seems straight forward but without comma, "hoping to pay off the debt by using the company's earnings and to profit richly by later resale of the companies or their divisions." seems to modify the preceding clause.
verbal experts, please explain where I am missing.
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21 Jan 2016, 02:18
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

Investors are buying several companies and not one company. Therefore, the possessive noun company’s is erroneous in any given choice. So I am removing A and D straightaway. Among B, C and E:
The intended meaning is that investors buy companies, and hope to do two things namely 1. To pay off the debts using the earnings and 2. to profit richly by selling wholly or in part when the companies turn debt-free. As such, ‘by profiting’ is not part of paying off the debts. That is the reason ‘using’ and ‘profiting’ cannot go parallel. What should be parallel are the infinitives ‘to pay off’ and ‘to profit', the two intended goals of the leveraged buyout.
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18 Apr 2016, 09:09
What is the difference between with and by using?
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18 Apr 2016, 09:18
miliya23 wrote:
What is the difference between with and by using?

Hi,
with can be used for various purposes..
here 'with' is basically telling us 'using'.. Q uses this form
with could be used to express feelings such as with anger etc..
'with' could also be used to show togetherness.. i was with him etc

By is to show means or method.. Please come by air at the earliest..
Also to show action in PASSIVE voice..

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18 Apr 2016, 20:29
Hi All,

Request to explain the complete structure of the question . What each line signifies and then the use of the option to co-relate to the structure .
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19 Apr 2016, 11:28
abhisheknandy08 wrote:
Hi All,

Request to explain the complete structure of the question . What each line signifies and then the use of the option to co-relate to the structure .

The original meaning of the sentence is that the investors hope two things: to pay off debt and to profit. Only option A and E maintain this parallelism.

B. Implies that the investors hope to pay off debt in 2 ways: 1. by using and 2.by profiting. This is not the intended meaning.
The action "pay off" and "profit" should be parallel, not "use" and "profit".

C. Same reason as that in B.

D. Implies that the investors borrow money because: 1. they hope (hoping) and 2. they profit (profiting). The action "pay off" and "profit" should be parallel, not "hope"and "profit". Moreover the conjunction "and" is missing before "profiting". The first part of the sentence mentions many companies whereas the latter part deals with one particular company (..with the company's...)

A. The first part of the sentence mentions many companies whereas the latter part deals with one particular company (..by using the company's...). Moreover option E is more concise than option A since it uses "with" rather than "by using".
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Re: In a leveraged buyout, investors borrow huge sums of money  [#permalink]

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23 Oct 2019, 07:13
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