Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear. Consider the following case: Flowers by trene Ine is a small company and is considering a project that will require $500,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $140,000 ? 17.85% 15.75% 23.1045 21.00% Determine what the project's ROE will be if its EBIT is $60,000. When calculating the tax effects, assume that Flowers by lrene Inc. as a whole will have a large, positive income this year. 9.90% 8.55% 10.80% +9.0% Flowers by trene tnc. is aiso considering financing the project with 50% equity and sow debt. The interest. rate on the company's debt will be 11%. What will be the project's ROE if it produces an EBIT of 5140,000 ? 28.69% 38.81% 37.13% 33.75% What will be the project's ROE if it produces an EBIT of 560,000 and it finances 50% of the project with equity and 50% with debt? When calculating the tax effects, assume that Flowers by frene tnci as a whole will have a targe, positive income this year. 31.50% 28.88% 26.25% 34.12% The use of financlal leverage the expected ROE, the probability of a large loss, and consequently the risk borne by stockholders. The greater the firm's chance of bankruptcy, the its optimal debt ratio will be. manager is more likely to use debs in an effort to boost profits