D076 module 3 STUDY GUIDE

A company is trying to finance a project with a mortgage loan from a bank. The company's assessment of the project indicates that the company may experience several years of loss until the project becomes profitable. This means that the company might lose its ability to pay back the loan and the interest on the mortgage. What action might the bank take to protect its interest? - Set a strict covenant that the company cannot easily achieve. bondholders - are more interested in projects that give them a higher chance of getting their investment back while providing sufficient compensation Ethical Action - is based on accepted standards of conduct financial managers - are interested in safe but successful projects to keep their jobs secure and compensation steady Jack is a personal financial advisor. He is with a new client, and the client is asking him what he recommends for her portfolio. Jack knows that his firm's investment product performed well last year, but its performance changes from year to year—some years it is better than the market, and some years it is not. Also, the fee to invest in the product is higher than the fee to invest in a market index fund. If Jack sells his company's investment product, the customer's loyalty to the company is doubled. Which actions should Jack take? - Give a personal recommendation of the company's product while explaining its performance relative to the market over the past several years. legal action - follows the laws and rules set by authority