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

---

Definitions:

Trust

The dependence on the integrity, ability, honesty, and reliability of someone or something else.

Communication

The act of transmitting thoughts, processes, and ideas through a variety of channels.

Highly Creative Organizations

Organizations that foster an environment where innovation, experimentation, and creativity are actively encouraged and supported among employees.

Networked Culture

A culture where social networks and digital platforms significantly influence the norms, values, and practices of individuals and organizations.