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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

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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: Newtown Propane is a small company and is considering a project that will require $500,000 in assets. The project will be financed with to0\%s equity. The company faces a tax rate of 25%. What will be the ROE (return on equity) for this project if it produces an EBII (earnings before interest and taxes) of $145,000 ? 15.23% 16.31% 13.05% 21.75% Determine what the project's ROE will be if its EBIT is $45,000. When calculating the tax elfects, assume that Newtown Propane as a whole will have a large, positive incorne this year. 6.03% 6.7% 6.36% 5.36% Newtown Propane is also considering finanding the project with 50% equity and 50% debt. The interest rate on the company's debt will be 10%. What will be the prolect's ROE it it produces an EBrr of $145,000 ? 30.60% 28.80% 25.20% 36,00% What will be the project's foE if it produces an EBrT of 545,000 and it finances 50% of the project with equity and soos with debt? When calculating the tax effects, assume that Newtown Propane as a whole wil have a large, positive income this year. 18.90% 23.10% 21,00% 22.054 Galaxy Corp, currently is financed with 10\% debt and 00\% equity. Howper, its cro has proposed that the firm issue new lang-term debt and repurchase some of the firm's common stock. Its advisers helieve that the lono term debt would require a before-tax vield of 10%, while the firm: back earning power is 14%. The firm's operating incame and totat assets nill not be affected. The cFo has told the rest of the managernent tears that. to increase? Check all that opoly. Fit tistame Coit of reuter (rn) cost of dete (ra) finturn en astets (BOA) Bavic earring power (BEP)

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