Ch 14 Flashcards
0
Q
Covenants AKA restrictions
A
Protect both lenders and borrowers
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
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
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
4
Q
Bond indenture
A
A bond arises from this contract
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