Question: Spencer Company earned a 16 percent return on its total assets. Current liabilities are 10 percent of total assets. Long-term bonds carrying an 11 percent

Spencer Company earned a 16 percent return on its total assets. Current liabilities are 10 percent of total assets. Long-term bonds carrying an 11 percent rate are equal to 30 percent of total assets. There is no preferred stock. Is this application of leverage favorable or unfavorable from the viewpoint of Spencer’s stockholders?

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