The Purpose of the Restrictive Debt Covenant That Imposes Fixed

question 123

Multiple Choice

The purpose of the restrictive debt covenant that imposes fixed assets restrictions 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) prevent the firm from liquidation and ensure its ability to repay the debt

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Definitions:

Cheques Presented

Refers to the cheques that have been submitted to a bank for payment and are pending clearance.

Money Market Account

A type of savings account that typically offers higher interest rates, with some restrictions on withdrawal.

Cash Surplus

The amount of cash that exceeds the cash needs of a company, indicating a positive financial state with excess liquidity.

Major Expenditure

A significant financial outlay, often relating to the purchase of fixed assets, long-term investments, or other large-scale business expenses.