An example of a negative covenant that might be found in a bond indenture is a statement that the company: cannot lease any major assets without bondholder approval. shall maintain a cash surplus of $100,000 at all times. shall provide audited financial statements in a timely manner. must maintain the loan collateral in good working order. shall maintain a current ratio of 1.1 or higher.

T-comm makes a variety of products. it is organized in two divisions, north and south. the managers for each division are paid, in part, based on the financial performance of their divisions. the south division normally sells to outside customers but, on occasion, also sells to the north division. when it does, corporate policy states that the price must be cost plus 20 percent to ensure a "fair" return to the selling division. south received an order from north for 300 units. south's planned output for the year had been 1,200 units before north's order. south's capacity is 1,500 units per year. the costs for producing those 1,200 units follow