Blanks for bulleted list at bottom:

first bullet three blanks are all- decreases, increases

second bullet blank- lower, higher

third bullet blank- A conservative, an aggressive

5. The effect of financial leverage on ROE Companies that use debt in their capital structure are said to be using financial feverage. Using leveroge can increase shareholder returns, but. leverage also increases the risk that shareholders bear. Consider the following case: Chilly Moose Fruit Producer is considering a project that will require $700,000 in assets. The project will be financed with 100% oquity. The company faces a tax rate of 4096 . Assuming that the project generates on expected EBIT (eamings before interest and taxes) of $170,000, then Chilly Moose's anticipated ROE (return on equity) for the project will be: 12.3896 14.57% 16,03% 10,93% In contrast, assume that the project's Eem is only 550,000 . When calculating the tax effects, assume that the entire chilly Moore Frut Producer will earn a large, positive income this year. The resulting ROE will be Now consider the case of the Magic Moose Manufacturing: Magic Moose Manufacturing is considering implementing a project that is identical to that being evaluated by Chilly Moose-aithough Magic Moose wants to finance the $700,000.00 in additional assets using 50% equity and 50% debt capital. The interest rate on Magic Moose's new debt is expected to be 15%, and the project is forecasted to generate an EBIT of $170,000. As a result, the project is expected to generate a ROE of Now assume that Magic Moose finances the same project with 50% debt and 50% equity capital, but expects it to generate an E8IT of only 550,000 . Further assume that the company as a whole will generate a large, positive income this year, such that any loss generated by the project (with its resulting tax saving) will be offset by the company's other (positive) income. Remember, the interest rate on Magic Mooso's dabt is 15%. Under these conditions, it is reasonable to expect that Magic Mooso will generate a ROE of: 0.48% 0.44%0.4%0.52% Given the ROE-related findings above for both Chilly Moose and Mogic Moose, answer the following question: - The use of financial leverage a firm's expected ROE, the probability of a large loss, and consequently the risk borne by the firm's stockholders. - The greater a firm's chance of banknuptcy, the its optimal debt ratio will be. manager is more likely to use debt in an effort to boost profits, In contrast, assume that the project's EBIT is only 550,000 , When calculating the tax effects, assume that the entire Chiliy Moose Fruit Producer wal earn a large, positive income this year. The resulting ROE will be Magic Moose Manufacturing is considering implementing a project that is identical to that being evaluated by Chilly Moose-although Magic Moase wants to finance the 5700,000.00 in additional assets using 50% equity and 50% debt capital. The interest rate on Magic Moose's new debt is expected to be 15%, and the project is forecasted to generate an Eert of $170,000. As a result, the projact is expected to ganerate a ROE of. that Magic Moose finances the same project with 509 debt and 5045 equity capital, but expetcti it to generate an EatT of only 550 ,000. me that the company as a whole will generate a large, positive income this year, such that any loss generated by the project (with its saving) will be offset by the company's other (positwe) income. Remember, the interest rate on Mogic Moose's debt is 1550 . Under these E is reasonable to expect that Magic Moose will generate a RoE of: 5. The effect of financial leverage on ROE Companies that use debt in their capital structure are said to be using financial feverage. Using leveroge can increase shareholder returns, but. leverage also increases the risk that shareholders bear. Consider the following case: Chilly Moose Fruit Producer is considering a project that will require $700,000 in assets. The project will be financed with 100% oquity. The company faces a tax rate of 4096 . Assuming that the project generates on expected EBIT (eamings before interest and taxes) of $170,000, then Chilly Moose's anticipated ROE (return on equity) for the project will be: 12.3896 14.57% 16,03% 10,93% In contrast, assume that the project's Eem is only 550,000 . When calculating the tax effects, assume that the entire chilly Moore Frut Producer will earn a large, positive income this year. The resulting ROE will be Now consider the case of the Magic Moose Manufacturing: Magic Moose Manufacturing is considering implementing a project that is identical to that being evaluated by Chilly Moose-aithough Magic Moose wants to finance the $700,000.00 in additional assets using 50% equity and 50% debt capital. The interest rate on Magic Moose's new debt is expected to be 15%, and the project is forecasted to generate an EBIT of $170,000. As a result, the project is expected to generate a ROE of Now assume that Magic Moose finances the same project with 50% debt and 50% equity capital, but expects it to generate an E8IT of only 550,000 . Further assume that the company as a whole will generate a large, positive income this year, such that any loss generated by the project (with its resulting tax saving) will be offset by the company's other (positive) income. Remember, the interest rate on Magic Mooso's dabt is 15%. Under these conditions, it is reasonable to expect that Magic Mooso will generate a ROE of: 0.48% 0.44%0.4%0.52% Given the ROE-related findings above for both Chilly Moose and Mogic Moose, answer the following question: - The use of financial leverage a firm's expected ROE, the probability of a large loss, and consequently the risk borne by the firm's stockholders. - The greater a firm's chance of banknuptcy, the its optimal debt ratio will be. manager is more likely to use debt in an effort to boost profits, In contrast, assume that the project's EBIT is only 550,000 , When calculating the tax effects, assume that the entire Chiliy Moose Fruit Producer wal earn a large, positive income this year. The resulting ROE will be Magic Moose Manufacturing is considering implementing a project that is identical to that being evaluated by Chilly Moose-although Magic Moase wants to finance the 5700,000.00 in additional assets using 50% equity and 50% debt capital. The interest rate on Magic Moose's new debt is expected to be 15%, and the project is forecasted to generate an Eert of $170,000. As a result, the projact is expected to ganerate a ROE of. that Magic Moose finances the same project with 509 debt and 5045 equity capital, but expetcti it to generate an EatT of only 550 ,000. me that the company as a whole will generate a large, positive income this year, such that any loss generated by the project (with its saving) will be offset by the company's other (positwe) income. Remember, the interest rate on Mogic Moose's debt is 1550 . Under these E is reasonable to expect that Magic Moose will generate a RoE of