3. The effect of financial leverage on ROE Companies that use debt in the capital structure are said to be using financial beverage. Using beverage can increase shareholder returns, but leverage also increases the risk that shareholders bela Consider the following case: Sombra Corp. is a small company and is considering a project that will require $600,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be the BOE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $160,0007 16.00% 12.00% 13.00 20.0044 Determine what the project's Roe will be if its com is $40,000. When calculating the tax effects, assume that sombra Corp. as a whole will have a large, positive income this year 5.25% 4.009 @ 4.25% O -5.0% Sombra Corp. is also considering financing the project with 50% equity and 50% debt. The interest rate on the company's debt will be 1196. What will be the project's ROE W it produces an IT of $160,000 22.23 23,81% 31.75% O 30.16% What will be the project's ROE if it produces an EBIT of $40,000 and it finances 50% of the project with equity and 50% with debt? When calculating the tax effects, assume that Sombra Corp. as a whole will have a large, positive income this year -18.25% - 17.34 -20.99% 16.4296 Demo Inc currently is financed with 10% debt and 90% equity. However, its CFO has proposed that the firm we now long term debt and repurchase some of the firm's common stock. Its advisers believe that the fong term debt would require before txxyield of 10%, while the firm's bank caming power is 14% The firm's operating income and total sets will not be affected. The crofas told the rest of the management team that he believes this move will increase the firm's stock price, Denio Inc. proceeds with the recapitalization, which of the following items we also likely to increase? Check all that apply Banc eaming nowe(BEP) Return on wat (ROA) Net Income Cost of equity (1) Cont of debita