Operating and Financial Constraints Placed on a Corporation by Loan

question 39

Multiple Choice

Operating and financial constraints placed on a corporation by loan provisions are

• A) agency costs to the firm.
• B) necessary to control the risk of the firm.
• C) agency costs to the lender.
• D) interest rate costs to the firm.

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Definitions:

Savings Account

A deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.

Interest Rate

The cost of borrowing money or the return on investment expressed as a percentage, typically on an annual basis.

Implicit Costs

Non-monetary opportunity costs, such as time or foregone alternatives, not directly accounted for in financial transactions.

Explicit Costs

Direct, out-of-pocket payments for expenses such as wages, rent, and materials, which are easily quantifiable.