Companies that use debk in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that sharehoiders bear. Consider the following case: wizard a is considering a project that wil require SS00,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 40%. What will be the ROE (return on equity) for this project rtpoduces an EBIT (earmings before interest and taxes) of $145,000 12.2% 17.4% 18.3% o 19.1% Determine what the project's ROE wil be if its EBIT is-$50,000. When caliculating the tax effects, assume that Wizard Co. as a whole will have a large, pos income this year 0-60% 0-69% 0-66% wizard Co. is also consdenng fnanong the project with SO% equity and SO% dett. The interest rate on the company's debt will be 13%, what wil be the project's Roe t produces an Ear asas0007. 21.6% 18.9% o 28.4% What will be the project's ROEit produces an EBIT of-$50,000 and it finances 50% of the project with equity and 50% with debt? when calculating the tax effects, assume that Wizard Co. as a whole will have a large positive income this year 2 4 6 18.9% 27.0% 28.4% What will be the project's ROE ifitproduces an EBIT of-$50,000 and it finances 50% of the project with equity and SO% with debt? when calculating the tax efects, assume that wizard Co. as a whole wil have a large, positive income this year. 9-198% -22.8% 0-24.9% -18.8% Globo-chem Co. oumenty is financed with its debt and 90% equity. However, lts CFO has proposed that the firm iscue 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 10%, while the firm's basic earning power is 14%. The firm's operating income and total assets will not be affected. The CFO has told the rest of the management team that he beleves this move will increase the firm's stock price. If Giobo-Chem Co. proceeds with the recapitalization, which of the following tems are also likely to increase? Check al that apply. Basic earning power (BEP) Net income Return on assets (ROA) D Cost of equity (r) Cost of debt (a) 8. 5 6 4