Question

Recently, Epic Electronics borrowed $600,000 from Dinero Finance to secure financing for a planned expansion. Theloan agreement requires that Epic Electronics provide the title to their factory as collateral.
a. recospitalization
b. secured
c. pledged
d. minority

Answer 1

Answer: b. Secured

Explanation: A secured loan would requires that Epic Electronics provide the title to their factory as collateral. Secured loans are defined as those loans for which the borrower puts up some asset as collateral (assets one owns) for the loan that can be used as payment to the lender if the loan is not paid back. The risk of default is usually relatively low because lenders accept collateral against secured loans to incentivize borrowers to repay the loan on time; such loans may have lower interest rates, offer larger loan amounts, and even better terms.

Answer 2

Answer:

A. Recapitalization

Explanation:

From the option given, the right answer is recapitalization. It was mistakenly written as recospitalization

Collateral is a borrower's pledge of specific property to a lender, to secure repayment of a loan.

Collateral is an asset that a lender accepts as security for extending a loan. If the borrower defaults on her loan payments, the lender may seize the collateral and sell it to recoup some or all of his losses. Collateral can take the form of real estate or other kinds of assets, depending on what the loan is used for.

From the options given;

a) Recapitalization is a type of corporate reorganization involving substantial change in a company's capital structure.

b) A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan.

C) Pledged collateral refers to assets that are used to secure a loan.

d) Minority business loans are a source of business funding offered exclusively to minority-owned businesses

From the explanations above, Epic Electronics borrowed $600,000 for expansion which means it's not a minor company if it could borrow that amount of money for expansion. The expansion will bring change in the company's capital structure and they will have to use RECAPITALIZATION as the title due to the purpose of the loan.