Ch 14

Question 0

Covenants AKA restrictions

Answer 0

Protect both lenders and borrowers

Question 1

Longterm debt

Answer 1

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

Question 2

What does the bond indenture AKA agreement include: 8 things

Answer 2

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

Question 3

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

Answer 3

They lose value

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

Question 4

Bond indenture

Answer 4

A bond arises from this contract

Question 5

2 promises to pay represented by a bond

Answer 5

1 sum of money at designated maturity date

2 periodic interest at specified rate on maturity amount
face value