Restrictive Covenants

question 21

Multiple Choice

Restrictive covenants

• A)generally require that firms use debt finance rather than equity finance.
• B)generally require that firms use equity finance rather than debt finance.
• C)put restrictions on the use of borrowed funds.
• D)were outlawed under the Civil Rights Act of 1964.

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Definitions:

Retained Earnings

The portion of a company's profits that are kept within the company instead of being paid out to the shareholders as dividends.

Issuing Shares

The process by which a company sells new shares to investors in order to raise capital.

Liquidity

The ability of an asset to be converted into cash quickly without significantly affecting its price.

Cash Flows

Cash Flows represent the movement of cash and cash equivalents into and out of a business, crucial for assessing its liquidity, flexibility, and overall financial performance.