Tom Parish is the owner of Eminent Furniture, a private company based in Western Australia. To finance
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Question:
Tom Parish is the owner of Eminent Furniture, a private company based in Western Australia. To finance expansion into other cities in Australia, the business has borrowed $3 million. As part of the lending agreement, Eminent's borrowings cannot exceed 60% of the company's total assets. Tom's remuneration, and that of other senior management, comprises a combination of fixed salary (45%) and bonus plan (55%).
Question:
Provide a brief answer for Lisa in an email format, what is the purpose of a debt covenant, and why Eminent would be willing to accept a debt covenant in a lending agreement?
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