The Purpose of Debt Covenants That Require the Firm to Rank

question 55

Multiple Choice

The purpose of debt covenants that require the firm to rank any subsequent borrowing below the original loan is to:

• A) limit the amount of fixed-interest payments.
• B) make sure that any cash restraints do not affect current obligations.
• C) protect the lender in their claim over pledged assets in the event of failure.
• D) protect the shareholders' claims over assets.

---

Definitions:

Buying Center

A group of individuals within an organization who are involved in the decision-making process for purchasing products or services.

Ford Motor Co.

An American multinational automaker founded by Henry Ford, known for revolutionizing the automobile industry with mass-production techniques and for its iconic vehicles.

Key Personnel

Individuals within an organization who hold critical roles and whose skills and knowledge are essential to its operation and success.

Buying Center

Within an organization, a team of personnel engaged in the process of making decisions to acquire products or services.