The purpose of the restrictive debt covenant that prohibits borrowers from entering into certain types of leases is to
A) protect the lender by controlling the risk and marketability of the borrower's security investments alternatives.
B) limit the amount of fixed-payment obligations.
C) ensure a cash shortage does not cause an inability to meet current obligations.
D) prevent liquidation of assets through large salary increases of key employees.

Question

Quizplus · Accepted Answer

Restrictive debt covenants that prohibit certain types of leases aim to limit the borrower's fixed-payment obligations, thereby reducing the risk of default and protecting the lender's interests.

The Purpose of the Restrictive Debt Covenant That Prohibits Borrowers