Aero Company is able to earn a 12% return on assets. The Company can issue bonds that have an 8% interest rate. On January 1, Year 3 the company had assets and stockholders equity of $20,000. Also, on January 1, Year 3 the company issued $10,000 of bonds and invested the proceeds. As a result of financial leverage, the return on equity at the end of Year 3 will

increase from 8% to 12%.

decrease from 18% to 12%.

increase from 12% to 18%.

decrease from 12% to 8%.