Which of the Following Will Help Avoid the Thin Capitalization

question 204

Multiple Choice

Which of the following will help avoid the thin capitalization problem?

• A)Avoid any provision for interest.
• B)Do not provide for a definite maturity date.
• C)Make repayment contingent on the corporation's earnings.
• D)Subordinate the debt to other liabilities.
• E)None of these.

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Definitions:

Earnings Announcement

The public declaration of a company's profitability for a specific period, often impacting its stock price.

Credit Risk

The risk that a lender may not receive the owed principal and interest, leading to disrupted cash flows and increased costs for collections.

Quarterly Cash Flows

The movement of cash into and out of a business over a three-month period, often used to indicate the company's liquidity, efficiency, and financial health.

Technology Companies

Firms that produce or provide technology products and services, including software development, electronics manufacturing, and information technology services.