In Recent Years, Lenders Have Been Unwilling to Relieve Borrowers

question 31

Multiple Choice

In recent years, lenders have been unwilling to relieve borrowers from personal liability in the event of fraud, environmental problems, or unpaid property tax obligations. Therefore, some lenders include a clause that pierces the single-purpose borrowing entity to hold the actual borrower liable in such instances. This clause is commonly referred to as a:

• A) habendum clause
• B) lockout provision
• C) defeasance
• D) "bad boy carve-out" clause

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Definitions:

Net Present Value

A method used in capital budgeting to assess the profitability of an investment, calculated by subtracting the projected cash outflows from the present value of cash inflows.

Opportunity Cost

The cost of foregoing the second-best option when making a decision, representing the benefits that could have been received by taking a different action.

Make-Or-Buy Decision

A decision-making process used by businesses to determine whether to produce goods in-house or purchase them from an external supplier.

Cost Recovery

The process of recouping the costs of an investment, expense, or other outlay of funds, often related to capital projects, taxes, or legal judgments.