1. The effect of financial leverage on ROE Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear. Consider the following case: Universal Exports Inc. is considering a project that will require $500,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 30%, what will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $155,000? 23.9% 16.3% o 21.7% o 15.2% Determine what the project's ROE will be if its EBIT is-$45,000. When calculating the tax effects, assume that Universal Exports Inc. as a whole will have a large, positive income this year 0-63% 0-5096 9-57% 9-69% Universal Exports Inc. is also considering financing the project with 50% equity and 50% debt. The interest rate on the company's debt will be 12%, what vill be the project's ROE rit produces an EBIT of $155,000? 36.8% o 40.3% 24.5% o 35.0% wiat will be the project's ROE if it produces an EBIT of-s 45,000 and it finances or the project with equity ind 50% with debt? when calculating the tax effects, assume that Universal Exports ine as a ?ole will have a large, positive income this year. O-21.0% 0-23.1% -25.2% -22.1% Smith and T Co. currently is financed with 10% debt and 90% equity, However, its CO has proposed that the finn issue new long-term debt and repurchase some of the firm's common stock. Its advisers believe that the long-term debt would require a before-tax yield of 109, while the firm's basic earning power is 14%. The firm's operating income and total assets will not be affected. The CHO has told the rest of the management team that he believes this move will increase the firm's stock price. If Smith and T Co. proceeds with the recapitalization, which of the following