The Purpose of the Debt Covenant That Requires Maintaining a Minimum

question 58

Multiple Choice

The purpose of the debt covenant that requires maintaining a minimum level of net working capital is to ________.

• A) protect the lender by controlling the risk and marketability of the borrower's security investment alternatives
• B) limit the amount of fixed-payment obligations
• C) ensure a cash shortage does not cause an inability to meet current obligations
• D) limit the annual cash dividends paid by the firm

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Definitions:

Labor Unions

Organizations formed by workers from related fields that work for the betterment of their members' working conditions, wages, and benefits.

AFL

The American Federation of Labor, a national federation of labor unions in the United States.

Small Employers

Businesses with a relatively small number of employees, which may face different challenges and regulatory standards than larger organizations.

Manufacturing Companies

Businesses involved in the production of goods in large quantities, typically using machinery and involving the assembly of components or the processing of raw materials.