2. 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 Turtie 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 $55,000. - Common equity outstanding will be 25,000 shares. - The company incurs a tax rate of 40%. If the project is financed using 100% equity capital, then Happy Turtle Transportation Company's return on equity (ROE) on the project will be . In addition, Happy Turtle's earnings per share (EPS) will be Aternatively, Happy Turtle Transportation Company's CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the company's debt will be 10\%. Because the company will finance only 50% of the project with equity, it will have only 12,500 shares 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. Typically, using financial leverage will if management