Debt Covenants

question 16

Multiple Choice

Debt covenants:

• A) contain restrictions to control lenders' activities.
• B) are designed to protect the interest of managers.
• C) reduce the risk to lenders.
• D) result in higher interest rates being imposed on the borrowers.

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Definitions:

Target Costing

The target cost is determined by subtracting a desired profit from a market-determined price. The resulting target cost is used to motivate cost improvements in design and manufacture.

Selling Price

The amount of money for which a product or service is sold.

Target Costs

The desired cost of a product for which a company aims in order to achieve a desired profit margin after considering the selling price and required profit.

Markup Percentage

The percentage added to the cost price of goods to cover overhead and profit.