Use of debt in framing the capital structure of a company is favourable when :

Return on Investment > Cost of Debt

The correct answer is option (2)- Return on Investment > Cost of Debt.

Use of debt in framing the capital structure of a company is favourable when Return on Investment > Cost of Debt.

Using debt in the capital structure of a company is favorable when the Return on Investment (ROI) (or the return generated by the company's assets) is greater than the Cost of Debt. This is because debt can be a cheaper source of financing compared to equity, and when ROI exceeds the cost of debt, the company can use the borrowed funds to generate returns greater than the interest expense, thus increasing overall profitability and shareholder value.