Covenants Restricting Additional Borrowings Primarily Protect The

question 25

Multiple Choice

Covenants restricting additional borrowings primarily protect the:

• A)shareholders' residual interests in the firm.
• B)debtholders from the added risk of dilution of their claims.
• C)debtholders from changes in market interest rates.
• D)managers by avoiding agency costs.
• E)shareholders from agency costs.

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Definitions:

Proxy

A document authorizing a person to vote on another's behalf at shareholder meetings, or the individual authorized to do so.

Preemptive Right

A shareholder's right to buy new shares in a company before they are offered to the public, to maintain their proportionate ownership in the company.