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

ROI stands for Return on Investment. It is a financial metric that is used to evaluate the efficiency or profitability of an investment or to compare the efficiency of a number of different investments.

The "cost of debt" refers to the effective interest rate a company pays on its debts and other borrowed funds. it is a measure of the expense incurred by a company for taking on debt, including interest payments and other costs associated with borrowing.

It is favourable when ROI is greater then cost of debt