FINANCIAL STATEMENT ANALYSIS``
CHAPTER 8 EXAM QUESTIONS AND
ANSWERS 2026
In a principal-agent relationship, the __________ is able to make
decisions on behalf of, or that impact, the __________. -
correct answer ✅Agent, principal
Covenants that prevent risks related to mergers and acquisitions
that could affect loan repayments are called -
correct answer ✅Protection against credit-damaging events.
Which of the following is not an example of an affirmative
covenant? -
correct answer ✅Limits on capital expenditures
The calculation for the fixed-charge coverage ratio uses ______ in
its denominator. -
correct answer ✅Current maturities + dividends + replacement
CapEx
True or false: The fixed-charge coverage ratio requirement improves
the company's ability to pay dividends. -
correct answer ✅False
,FINANCIAL STATEMENT ANALYSIS``
CHAPTER 8 EXAM QUESTIONS AND
ANSWERS 2026
In a principal-agent relationship, a cost that may arise because of
the relationship is called a(n) _______ cost. -
correct answer ✅Agency
Restrictions that help guard against conflicts of interest between
creditors and borrowers are referred to as -
correct answer ✅Debt covenants
Affirmative covenants are actions that the borrower must make and
generally include -
correct answer ✅1. Allowing the lender to inspect business
assets.
2. Providing audited financial statements.
Assume that XYZ Company has a loan agreement that states that it
must maintain a fixed-charge coverage ratio greater than or equal
to 1.0 They have net income of $75, noncash charges of $25,
current loan maturities of $60, stock repurchases of $10, and
replacement capital expenditures of $20. Which of the following
statements is true? -
correct answer ✅They can pay a dividend of no more than $20 to
remain within the covenant.
, FINANCIAL STATEMENT ANALYSIS``
CHAPTER 8 EXAM QUESTIONS AND
ANSWERS 2026
Covenants that restrict the borrower's actions are called _________
covenants. -
correct answer ✅Negative
The fixed-charge coverage ratio requirements limits a company's
ability to -
correct answer ✅Pay dividends
Restrictions on total indebtedness -
correct answer ✅Limit the amount of additional debt the
company may incur over the loan term.
Limits on new borrowing and ensuring that cash from ongoing
operations will not be diverted away from servicing debt are known
as -
correct answer ✅Preservation of repayment capacity.
The section of a loan agreement describing circumstances where
the creditor obtains additional rights is called the ___________ of
CHAPTER 8 EXAM QUESTIONS AND
ANSWERS 2026
In a principal-agent relationship, the __________ is able to make
decisions on behalf of, or that impact, the __________. -
correct answer ✅Agent, principal
Covenants that prevent risks related to mergers and acquisitions
that could affect loan repayments are called -
correct answer ✅Protection against credit-damaging events.
Which of the following is not an example of an affirmative
covenant? -
correct answer ✅Limits on capital expenditures
The calculation for the fixed-charge coverage ratio uses ______ in
its denominator. -
correct answer ✅Current maturities + dividends + replacement
CapEx
True or false: The fixed-charge coverage ratio requirement improves
the company's ability to pay dividends. -
correct answer ✅False
,FINANCIAL STATEMENT ANALYSIS``
CHAPTER 8 EXAM QUESTIONS AND
ANSWERS 2026
In a principal-agent relationship, a cost that may arise because of
the relationship is called a(n) _______ cost. -
correct answer ✅Agency
Restrictions that help guard against conflicts of interest between
creditors and borrowers are referred to as -
correct answer ✅Debt covenants
Affirmative covenants are actions that the borrower must make and
generally include -
correct answer ✅1. Allowing the lender to inspect business
assets.
2. Providing audited financial statements.
Assume that XYZ Company has a loan agreement that states that it
must maintain a fixed-charge coverage ratio greater than or equal
to 1.0 They have net income of $75, noncash charges of $25,
current loan maturities of $60, stock repurchases of $10, and
replacement capital expenditures of $20. Which of the following
statements is true? -
correct answer ✅They can pay a dividend of no more than $20 to
remain within the covenant.
, FINANCIAL STATEMENT ANALYSIS``
CHAPTER 8 EXAM QUESTIONS AND
ANSWERS 2026
Covenants that restrict the borrower's actions are called _________
covenants. -
correct answer ✅Negative
The fixed-charge coverage ratio requirements limits a company's
ability to -
correct answer ✅Pay dividends
Restrictions on total indebtedness -
correct answer ✅Limit the amount of additional debt the
company may incur over the loan term.
Limits on new borrowing and ensuring that cash from ongoing
operations will not be diverted away from servicing debt are known
as -
correct answer ✅Preservation of repayment capacity.
The section of a loan agreement describing circumstances where
the creditor obtains additional rights is called the ___________ of
