A Line of Credit Represents a Guarantee from a Bank

question 39

True/False

A line of credit represents a guarantee from a bank to lend a firm a given amount of money.

---

Definitions:

Debt Capacity

The maximum amount of debt a business or entity can borrow without reaching financial distress.

Diversification Benefits

Advantages obtained from investing in a variety of assets, which helps to reduce risk by spreading exposure across different investments.

Purchase Accounting

An accounting method used to consolidate the financial statements of a acquiring company and the company it has acquired.

Net Asset Value

Net Asset Value is the total value of an entity’s assets minus its liabilities, often used in relation to the value of an investment fund.