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 Red Snail Satellite Company is considering a project that will require $700,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 40%. Assuming that the project generates an expected EBIT (earnings before interest and taxes) of $170,000, then Red Snail's anticipated ROE (return on equity) for the project will be: 8.74% 16.03% 12.38% 14.57% In contrast, assume that the project's EBIT is only $50,000. When calculating the tax effects, assume that the entire Red Snail Satellite Company will earn a large, positive income this year. The resulting ROE will be