FINC 3310/Leavell - Quizzes Chapters 7,9 & 10 (Exam 2 Preparation) 2023/2024

FINC 3310/Leavell - Quizzes Chapters 7,9 & 10 (Exam 2 Preparation) 2023/2024 ____ are provisions that restrict and specify certain activities in which the borrower can engage. - ANSWER-Restrictive covenants A(n) _____________ is a contractual agreement by the borrower to pay the lender fixed dollar amounts at periodic intervals. - ANSWER-debt contract ____ financing is many times more important than ______ financing. - ANSWER-Indirect; direct Investors use _____ that reflect the probability of default to determine the creditworthiness of a particular security. - ANSWER-credit ratings Net Worth is _______. - ANSWER-the difference between a firm's assets and its liabilities. How adverse selection influences financial structure is a ____________. - ANSWER-lemons problem ___________ are a type of moral hazard problem that arises when a person has multiple interests and, as a result, has conflicts among these interests. - ANSWER-Conflicts of interest ___________ is debt collateralized with property. - ANSWER-Secured debt The separation of ownership and management can lead to poor management because managers may _______. - ANSWER-not have an incentive to maximize the owners' profit Which of the following tools helps to solve moral hazard in debt contracts? - ANSWER-Covenants to keep collateral valuable.