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Debt contracts may contain accounting based covenants such as: maintain working capital levels, stay below a specified debt-equity ratio, and maintain an agreed times interest
Debt contracts may contain accounting based covenants such as: maintain working capital levels, stay below a specified debt-equity ratio, and maintain an agreed times interest earned ratio.
- Explain how each of these covenants help to generate the lenders trust such that they are willing to lend money to the company at a reasonable cost.
- Do these covenants give lenders complete trust that their interest and principal will be paid? Explain.
Please explain as thoroughly as possible
Thank you
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