1. Debt covenants are least likely to place restrictions on the borrower’s ability to:
A. Issue additional debt.
B. Issue additional equity.
C. Pay dividends.
2. Combined Corporation issues $5 million face value, seven-year bonds with a coupon rate of 3.5 percent paid annually. The market interest rate was 2.0 percent at the time of bond issuance. Using the effective interest rate method of amortization, the carrying value of liability after one year will be closest to:
A. $5.42 million.
B. $5.49 million.
C. $5.66 million
3. Damas Gold Mines has $620 million in total liabilities and $380 million in shareholder’s equity. It discloses operating lease commitments over the next four years with a present value of $60 million. If the lease commitments are treated as debt, the debt-to-total capital ratio is closest to:
Tomorrow’s questions of the day will be on the topic of R33: Financial Reporting Quality