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

question 37

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:

Missouri Compromise

A series of agreements passed by Congress in 1820-21 to maintain the balance of power between slave states and free states.

National Crisis

A critical situation or period of significant turmoil that affects an entire nation, posing a substantial challenge to its stability and functioning.

Sectional Issues

Conflicts and disagreements between different geographical regions or sections within a country, often related to economic interests, cultural values, or political power.

Policies Toward Indians

Governmental actions and regulations directed at managing relations with Native American tribes, often involving issues of land, sovereignty, and cultural preservation.