Operating and Financial Constraints Placed on a Corporation by Loan

question 191

Multiple Choice

Operating and financial constraints placed on a corporation by loan provision are

• A) agency costs to the lender.
• B) agency costs to the firm.
• C) interest rate costs to the firm.
• D) necessary to control the risk of the firm.

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Definitions:

Externalities

Effects of a production or consumption activity on other parties not directly involved in the transaction, which may be either positive or negative.

Neutral Taxes

Taxes that do not affect the allocation of resources between different goods or activities in the economy.

Excess Burdens

The economic inefficiencies or losses that result from imposing taxes or government policies.

Principle of Second Best

An economic theory that suggests when a condition for a perfect market cannot be met, the next-best solution may involve violating another condition to improve efficiency.