Cavell Products Inc., a manufacturer of electronic devices, borrowed heavily during the early 2000s to exploit the advantage of financing operations with debt. At first, Cavell Products Inc. was able to earn operating income much higher than its interest expense and was therefore quite profitable. However, when the business cycle turned down, Cavell Products Inc.'s debt burden pushed the company to the brink of bankruptcy. Operating income was less than interest expense.
Require
Is it unethical for managers to commit a company to a high level of debt? Or is it just risky? Who could be hurt by a company's taking on too much debt? Discuss.