Explanation:

- Financial leverage arises when a company uses debt to finance investments, thus magnifying returns but also risks.

- An unfavorable leverage scenario arises when the cost of debt (interest rate) exceeds the return on investments.

- Option 1: More than 16%

- If interest payable on debt is more than 16%, the debt costs exceed the company's return, leading to unfavorable leverage.

- Option 2: Less than 16%

- If the interest rate is below the return rate, the company profits from the debt, leading to favorable leverage.

- Option 3: Equal to 16%

- An equal interest rate and return rate would lead to neutral leverage, where there is no impact on profits.

- Option 4: None of the above

- All scenarios are covered in the other options.