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:

Correlation Coefficient

A statistical measure that indicates the extent to which two variables fluctuate together.

Negative Correlation

A statistical relationship between two variables where one variable increases as the other decreases.

Positive Correlation

A relationship between two variables in which both variables move in the same direction.

Correlation Coefficient

A statistical measure that represents the degree of association or correlation between two variables, ranging from -1 to +1.