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Question
What depreciation method is used if depreciation expense is $6,000 in 2014?
A. Straight-line.
B. Sum of years' digits.
C. Double-declining balance.
D. Composite.
Answer
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Because covenant compliance can be jeopardized by mandated changes in accounting principles, many loan agreements have financial covenants that rely on the accounting rules in place when the loan is first granted.
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Commercial lending agreements may contain provisions that are designed to protect the lender from a deterioration of the borrower's creditworthiness.
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Risky firms have a higher risk-adjusted cost of capital. Which one of the following factors would contribute to that firm also having a high price/earnings ratio?
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C. all operating costs, depreciation, taxes, and a fair return on invested capital.
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B. short-term incentives.
C. long-term incentives.
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B. affirmative covenants.
C. negative restrictions.
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B. borrowers.
C. both lenders and borrowers.
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