If a company's lenders wanted to ensure that the company maintained adequate levels of equity to pay back their loans, a good strategy would be to impose restrictions on dividend payments and purchases of treasury stock.

Question

Quizplus · Accepted Answer

By imposing restrictions on dividend payments and purchases of treasury stock, lenders can ensure that the company retains a portion of its earnings for its capital reserves, which can be used to pay back loans in the future. This decision can help prevent the company from paying out excessive dividends or buying back too much stock, which could lead to financial instability and difficulty in repaying loans.

If a Company's Lenders Wanted to Ensure That the Company