Ch 14 Flashcards

0
Q

Covenants AKA restrictions

A

Protect both lenders and borrowers

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1
Q

Longterm debt

A

Consists of probable future sacrifices of economic benefits
Arising from present obligations not payable w/in year

Or operating cycle of company, whichever is longer

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2
Q

What does the bond indenture AKA agreement include: 8 things

A
1 amount authorized to be issued
2 interest rate
3 due dates
4 call provisions
5 property pledged as security
6 sinking fund requirements
7 working capital and dividend restrictions
8 limitations concerning additional debt
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3
Q

What happens to the value of bonds in a leveraged buyout? Why

A

They lose value

Loss in value occurs because additional debt added in
capital structure increases likelihood of default

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4
Q

Bond indenture

A

A bond arises from this contract

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5
Q

2 promises to pay represented by a bond

A

1 sum of money at designated maturity date

2 periodic interest at specified rate on maturity amount
face value

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