Which of the Following Is an Example of an Appropriate

question 57

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 these are examples of an appropriate loan covenant.

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Definitions:

Proceeds

The amount of money received from a sale or transaction.

Interest

The cost of borrowing money, typically expressed as a percentage of the principal, paid by the borrower for the use of lender’s funds.

Compounded Interest

Interest that is computed on both the original amount of money and the interest it has already earned over past periods, whether it’s a savings or a loan.

Investments

Assets or items acquired with the intention of generating income or appreciating in value over time.