One Reason Lenders May Require a Large Net Worth Before

question 9

Multiple Choice

One reason lenders may require a large net worth before making a loan is because:

• A)Then the borrower does not need the funds
• B)It tells the lender the firm has good employees
• C)It is one way to treat the problem of moral hazard
• D)Banking laws require firms have significant net worth before a bank can make a loan

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Definitions:

Federal Inheritance Tax

A tax imposed by the federal government on the transfer of estate from a deceased person to their beneficiaries or heirs.

General Sales Tax

A tax imposed on sales transactions, usually calculated as a percentage of the selling price of goods and services.

Ability-to-pay Philosophy

A principle of taxation that argues taxes should be levied according to a taxpayer's capacity to pay, focusing on fairness in the distribution of tax burdens.

Progressive Income Tax

A tax system where the tax rate increases as the taxable amount or income of the taxpayer increases.