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:

Expected Revenue

Expected revenue is the amount of money a business anticipates earning over a specified period, often based on historical data and future projections.

Probability Distribution

A mathematical function that gives the probabilities of occurrence of different possible outcomes for an experiment.

English Auction

A type of auction where bidders publicly submit higher and higher bids, with the highest bidder winning the item.

Rational Self-Interest

The principle that individuals will make decisions that benefit themselves, assuming they have all necessary information and make rational choices.