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

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.