Which of the Following Is a Typical Bond Covenant Restriction

question 9

Multiple Choice

Which of the following is a typical bond covenant restriction on dividends and share repurchases?

• A)Payouts can be made only once existing debt has been paid.
• B)Payouts can be made only if earnings exceed some threshold.
• C)Payouts cannot exceed interest payments to existing bondholders.
• D)Shares can only be repurchased by issuing new debt.
• E)Payouts cannot be made until existing debt is within one year of maturity.

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Definitions:

Variable Costs

Costs that vary in direct proportion to changes in the amount of production or activity, like costs for direct labor and raw materials.

Fixed Costs

These are expenses that do not change in total regardless of the level of production or sales activity, such as rent, salaries, and insurance.

Unit Sales Price

The price at which a single unit of product is sold.

CVP Graph

A visual representation of the Cost-Volume-Profit analysis that shows the relationship between total costs, sales volume, and profit.