Asked by Gregory Bracco on May 20, 2024
Verified
Which of the following is an example of a positive covenant?
A) The firm must limit the amount of dividends it pays according to some formula.
B) The firm cannot pledge any assets to other lenders.
C) The firm cannot merge with another firm.
D) The firm cannot sell or lease any major assets without approval by the lender.
E) The company must maintain its working capital at or above some specified minimum level.
Positive Covenant
An agreement in a loan contract that requires the borrower to perform specific actions.
Dividends
Shareholders receive payments from a corporation, typically sourced from its profits.
- Understand different types of bond covenants and their implications for firms and investors.
Verified Answer
EA
Eassa Al BairamiMay 21, 2024
Final Answer :
E
Explanation :
Positive covenants are agreements that require the borrower to perform specific actions. Option E, which requires the company to maintain its working capital at or above a specified level, is an example of a positive covenant because it obligates the company to actively ensure its working capital meets a certain standard.
Learning Objectives
- Understand different types of bond covenants and their implications for firms and investors.
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