Question: As a lender, you are contemplating a covenant that is based on the interest-coverage ratio. Ayoung member of your organization with a new MBA degree

As a lender, you are contemplating a covenant that is based on the interest-coverage ratio. A young member of your organization with a new MBA degree has suggested that you calculate the ratio using actual cash interest payments each period instead of interest expense each period. You have been asked to discuss this proposal. What do you say?

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