Reading Comprehension

Marty Murray wrote:Generally speaking people get tripped up by RC answer choices that they somehow feel are accurate representations or derivatives of what is said in the passage when actually they are not.

So one thing I am wondering is how careful you are about checking to see whether an answer choice really matches what is said in the passage.

For me to go much beyond that I would prefer to have some more information, such as the choices you chose when answering the questions you listed.

prachi18oct wrote:
In the early to mid-1980s, a business practice known as a "leveraged buyout" became popular as a method for companies to expand without having to spend any of their own assets. The leveraged buyout was not without its problems, however, and in time 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.
A leveraged buyout entails one company purchasing another using the assets of the purchased company as the collateral to secure the funds needed to buy that company. The leveraged buyout allows companies to take on debt that their own assets would have been insufficient to secure in order to finance expansion. The benefit of the leveraged buyout is obvious: companies with insufficient funds can still expand to compete with larger competitors. The drawbacks, however, became apparent only after the fact: the purchased company must perform extraordinarily well in order to generate the capital to pay off the loans that made the purchase possible in the first place. When the purchased company underperforms, the buyer must somehow find the money to pay off the loans. If such funds are not obtained, the buyer may be forced to sell off the company, or parts thereof, for less than the purchase price. In these cases, the buyer is still responsible for repaying the debt that is not covered by the sale price. Many of these deals resulted in the evisceration of the purchased companies, as subparts were sold to pay down the loans and employees were laid off to reduce costs and increase profits.
The most famous leveraged buyout is probably the 1988 purchase of RJR Nabisco by Kohlberg Kravis Roberts ("KKR"). The purchase price for the corporate giant RJR Nabisco was $25 billion, almost all of which was borrowed money. The takeover was "hostile," meaning that RJR Nabisco resisted any overtures from potential buyers. KKR ultimately succeeded by buying a controlling interest in RJR Nabisco, thereby obtaining voting control over the company. By the mid-1990s, though, KKR had seen a reversal of fortune and was forced to sell off RJR Nabisco in order to relieve itself of the crushing debt load.
The 1980s were the heyday of the leveraged buyout, as lending institutions were willing to loan money for these ventures. 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.



The primary purpose of the passage is to

The passage starts with describing a trend in para 1. In para 2, the passage defines leverage buyout along with its short comings. In para 3, with an example, states how risky leverage buyout can be.

A)criticize the motives of those who use risky financial strategies
Author never criticized anything. So, eliminate

B challenge a common perception of financiers
Infact author, via example in para 3, acknowledges risks associated with leverage buyouts.

C describe the evolution and application of a certain financial device
This, fits in with my paraphrasing of paras 1, 2 and 3.

D explain the popularity of leveraged buyouts during a certain period
Only a certain section of the RC does so not whole.

E argue that leveraged buyouts are detrimental to overall financial health
Author says that its risky not detrimental. So, ruled out.


The author mentions the RJR Nabisco case most probably in order to emphasize which of the following points?

A Many lending institutions are no longer willing to support leveraged buyouts.
Many lending institutions are no longer willing to support leveraged buyouts on assets of aquired companies.

B Leveraged buyouts can be successfully utilized to purchase large companies.
While leveraged buyouts can be utilized but not successfully.

C Leveraged buyouts are generally less successful in hostile takeovers than in non-hostile takeovers.
There is no comparison of success between hostile and non hostile take overs mentioned. So, eliminate.

D Leveraged buyouts contain major risks in addition to their benefits.
This is something the author touches in almost every para. So, correct.

E Kohlberg Kravis Roberts was a leader in the development of the leveraged buyout.
No where close to the text in RC.



The passage provides support for which of the following statements?

A Leveraged buyouts are utilized primarily by small companies.
No mention of size of buying companies discussed. However, size of bought companies is touched upon.

B Some companies purchased through leveraged buyouts fell short of their buyers' expectations.
There is a indirect mention of this through an example.

C Today, no banks or other lending institutions will finance leveraged buyouts.
Banks/Lending institutions will not finance based on purchased companies assets.

D Most leveraged buyouts bring significant financial rewards to the buyers.
Not strongly supported because passage does not talk about numbers.

E Leveraged buyouts were responsible for much of the economic growth of the 1980s.
It was popular but not sure whether it positively contributed to economy or not.
Please suggest.

prachi18oct wrote:

Marty Murray wrote:Generally speaking people get tripped up by RC answer choices that they somehow feel are accurate representations or derivatives of what is said in the passage when actually they are not.

So one thing I am wondering is how careful you are about checking to see whether an answer choice really matches what is said in the passage.

For me to go much beyond that I would prefer to have some more information, such as the choices you chose when answering the questions you listed.

Exactly the case with me.
In the posted question I marked below answers :-

1) I eliminated A,B, E due to words "crticize,argue,challenge" as the author never intended to do so. I ruled out B as I thought the leverage buyout is a strategy and not a device. As I had read earlier, you need to justify every word in the correct option for it to be correct. Thats why I ruled out B. If the word "device" were not added, I would have chosen B as it is more close to what the passage intends.

Please tell me why it can be a device and how in future I can pick a correct strategy to eliminate the incorrect one?

2)Here I eliminated A,E easily
The passage mentioned that "corporate giant RJR Nabisco was $25 billion" so it is a large company. So I keep this.
There is no talk about non-hostile takeovers or any comparison is mentioned to C is out.
Since the example is "most famous leveraged buyout" and the passage mentions "KKR ultimately succeeded by buying a controlling interest in RJR Nabisco" I found B more compelling over D.

Please suggest a way to remove such ambiguities between two answer choices.

3) I eliminated A, D,E easily as they are not supported in the passage.
Between B and C, I agree C is strongly worded and I should have ruled it out based on my "justify-each-word-strategy". But B is not very clearly supported in the passage. As it a direct support question, I couldn't find direct support for it and thus eliminated.

Does the part "The drawbacks, however, became apparent only after the fact: the purchased company must perform extraordinarily well in order to generate the capital to pay off the loans that made the purchase possible in the first place. When the purchased company underperforms, the buyer must somehow find the money to pay off the loans. If such funds are not obtained, the buyer may be forced to sell off the company, or parts thereof, for less than the purchase price" hints at option B? I guesss Yes.
Is it similar to GMAT like RC and options?