An Illegal Provision in a Contract

question 18

Multiple Choice

An illegal provision in a contract:

• A) causes the entire contract to be void.
• B) causes the entire contract to be rescinded.
• C) can be ignored by the parties in their performance of the remaining legal provisions of the contract.
• D) can be ignored by the parties, because an illegal provision in a contract is not deemed substantial.

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Definitions:

Compromise Dividend Policy

A strategy for distributing earnings to shareholders that seeks to balance between retaining earnings for reinvestment and paying dividends.

NPV Projects

Projects that are evaluated based on the Net Present Value method, which calculates the present value of future cash flows minus the initial investment cost.

Debt/Equity Ratio

The ratio that highlights the proportional use of debt and shareholders' equity in asset financing for a company.

Stripped Common Shares

Common stock on which dividends and capital gains are repackaged and sold separately.