Instead of Increasing Its Long-Term Debt by Borrowing Money from a Bank

question 59

Multiple Choice

Instead of increasing its long-term debt by borrowing money from a bank to purchase new stereo equipment, Jay's Jams Inc.decides to lease the equipment on a long-term basis.How will the long-term debt ratio differ if the lease option is selected over the bank-debt option?

• A)the ratio will be lower under the leasing option.
• B)the ratio will be higher under the leasing option.
• C)the ratio will be the same regardless of the financing method selected.
• D)the ratio effects are unknown without the amount of the lease obligation.

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Definitions:

Presidency

Refers to the executive head of state role, typically in charge of the executive branch of government in a republic or a democracy.

Glass-Steagall Act

Enacted in 1933, this Act separated commercial banking from investment banking and created the Federal Deposit Insurance Corporation (FDIC) to protect bank deposits.

FDIC

The Federal Deposit Insurance Corporation, a United States government agency that provides deposit insurance to depositors in American commercial banks and savings institutions.

Commercial Banks

Commercial banks are financial institutions that provide a variety of services, including accepting deposits, lending money, and offering checking and savings accounts to individuals and businesses.