The Purpose of the Restrictive Debt Covenant That Limits the Distribution

Multiple Choice

The purpose of the restrictive debt covenant that limits the distribution of profits to shareholders is to ________.

A) assure the lender that additional borrowing is constrained or may be subordinated to the original loan
B) limit the amount of fixed-payment obligations
C) ensure a cash shortage does not cause an inability to meet current obligations
D) avoid default of payments to bondholders