Which of the Following Is an Example of an Appropriate

question 84

Multiple Choice

Which of the following is an example of an appropriate loan covenant?

• A) The firm must increase its debt ratio by at least 10 percent.
• B) The firm must reduce its total asset turnover by 10 percent.
• C) The firm must purchase an insurance policy on a key employee.
• D) All of the options are examples of an appropriate loan covenant.

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Definitions:

Float Cost Impact

The effect of delayed checks or securities settlements on the use of funds, which can affect a company's cash flow.

Target Cash Balance

The optimal level of cash a company aims to maintain to manage daily operations and accommodate unexpected expenses or investment opportunities.

Cash Flow Uncertainty

The unpredictability regarding the amounts and timing of cash flows into or out of a business.

Marketable Securities

Short-term financial instruments that are easily convertible into cash, such as government bonds or certificates of deposit.