2. Business and finandal risk AaAa? The Impact of finandal leverage on return on equity and earnings per share Consider the following case of Lost Pigeon Aviation: suppose Lost Pigeon Aviation is considering a projedt that will require $200,000 in assets - The project is expected to produce eanings before interest and taxes (EBIm) of s s0,000. Common equity outstanding will be 30,000 shares. te Dompany incurs a tax rate of 30%. Ifthe project is financed using 100% equity capital, the Lost Pigeon Aviation's return on equity (ROE) an the project will be . In addition, Lost Pigeon's eamings per share (EPS) will be Alternatively, l ost Pigeon Aviation's is also considering financing the project with 50% debt and so% equity capital. Te 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 15,00D shares cutstanding. Lost Pigeon Aviation's ROE and the company's EPS will be equity if management dedes to finance the project with 50% debt and 50% Typically, using financial leverage will a project's expected ROE