What Does a Banker Evaluate to Determine a Company's Capacity

question 42

Multiple Choice

What does a banker evaluate to determine a company's capacity to repay a bank loan?

• A) the firm's credit history
• B) the firm's ability to generate cash flows
• C) the collateral used to secure the loan
• D) the character of the owners of the business

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Definitions:

Repurchase Agreement

A short-term borrowing agreement where one party sells securities and agrees to repurchase them at a higher price at a later date.

Municipal Bond

A bond issued by local or state governments to finance public projects, often offering tax-exempt interest payments.

Taxable Equivalent Yield

Taxable equivalent yield calculates the yield a taxable bond needs to match the after-tax yield of a tax-exempt bond, considering the investor's tax rate.

Tax Bracket

A range of incomes taxed at a particular rate, with progressive tax systems applying higher rates to higher income levels.