1. Business and financial risk The impact of financial leverage on return on equity and earnings per share Consider the following case of Happy Turtle Transportation Company: Suppose Happy Turtle Transportation Company is considering a project that will require $200,000 in assets. The project is expected to produce earnings before interest and taxes (EBIT) of $45,000. Common equity outstanding will be 25,000 shares. The company incurs a tax rate of 30%. If the project is financed using 100% equity capital, then Happy Turtle Transportation Company's return on equity (ROE) on the In addition, Happy Turtle's earnings per share (EPS) will be Alternatively, Happy Turtle Transportation Company's CFO is also considering financing the project with 50% debt and 50% equi rate on the company's debt will be 11%. Because the company will finance only 50% of the project with equity, it will have only outstanding. Happy Turtle Transportation Company's ROE and the company's EPS will be decides to finance the project with 50% debt and 50% equity