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 coupon rate are equal to 30 percent of total assets There is no preferred stock Is this application of leverage favorable or unfavorable from the ...

From the viewpoint of Spencers stockholders this situation ...

Spencer Company earned a 16 percent return on its total assets. Current liabilities are 10 percent of

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 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?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...