Which Statement Is True Regarding a Liquidated Damages Clause

question 31

Multiple Choice

Which statement is true regarding a liquidated damages clause?

• A) A provision for liquidated damages is illegal.
• B) A provision for liquidated damages is void because of public policy.
• C) A provision for liquidated damages is voidable because of public policy.
• D) A provision for liquidated damages is enforceable so long as it is not punitive in nature.
• E) A provision for liquidated damages will be enforced regardless of whether it is punitive in nature.

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Definitions:

Explicit Costs

Payments made directly to external parties as part of business operations, including salaries, rental fees, and the cost of goods.

Implicit Costs

are indirect expenses that do not involve a direct payment of money but represent a loss of opportunity to use resources elsewhere.

Normal Rate

A term that can refer to the typical or standard interest rate charged by lenders or expected returns on investments under normal conditions.

Operating Profit

The profit earned from a firm's normal core business operations, excluding deductions of interest and tax.