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Which conclusion is appropriate for the sauron co

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Problem 1: Your analysis of the Sauron Co. shows an RCA of 5.6%. Upon further examination, you find that it is paying 7.4% interest on its long-term bonds. Which conclusion below is appropriate for the Sauron Co.?

a. Sauron's use of leverage is not enhancing its shareholders' return this year.

b. Sauron is wisely using leverage to enhance its shareholders' return this year.

c. Comparing RCA to interest rates is not helpful in evaluating the use of leverage in a company.

d. None of the above

Reference no: EM132725006

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