Companies that use debt in their capital structure are said to be using hinancial leverage. Using leverage can increase sharehoider returns, but leverage also increases the risk that shareholders bear. Consider the following case: Wizard Co, 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 $145,000? 17.40%16.31%23.93%21.75% Determine what the project's ROE will be if its EBIT is 545,000. When calculating the tax effects, assume that Wizard Co. as a whole will have a targe, positive income this year. 6.7%7.03%6.36%8.04% Wizard Co. is aiso considering financing the project with 50% equity and 50% 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 $145,000 ? 33.49% 29.96% 36.78% 35.25% 29.96% 38.78% 35.25% What will be the project's ROE if it produces an EBIT of $45,000 and it finances 50% of the project with equity and 50% with debt? When calculating the tax effects, atsume that Wiaard Co. as a whole will have a lagge, positive income this year, 25.01%28.27%23.92%21.75% Demo inc, currently is financed with 10% debt and 9046 equity, However, its cF0 has proposed that the firm issue new long-term debt and repurchase some of the firm's common stock. Jts advisers believe that the long-term debt would require a before tax yield of 10%, whle the frrm's basic eaming power ls 14\%. The frm's operating income and total assets will not be affected. The cro has told the reat of the managernent team that he believes this move will increase the firm's stock price. If Demo inc. proceeds with the recapitalization, which of the following ieems are also likely to increase? Check aN that apply. Basic earning power (fEEP) Net income Cost of equity (f1) Cost of debt (rd) Return on assets (ROA)