Consider the following case of Free Spirit Industries Inc.: Suppose Free Spirit Industries Inc. is considering a project that will require $350,000, in assets. The project is expected to produce earnings before interest and taxes (EBIT) of $40,000. . Common equity outstanding will be 15,000 shares. The company incurs a tax rate of 30%. . In addition, Free If the project is financed using 100% equity capital, then Free Spirit's return on equity (ROE) on the project will be Spirit's earnings per share (EPS) will be Alternatively, Free Spirit Industries Inc.'s CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the company's debt will be 10%. Because the company will finance only 50% of the project with equity, it will have only 7,500 shares outstanding. Free Spirit Industries Inc.'s ROE and the company's EPS will be if management decides to finance the project with 50% debt and 50% equity. When a firm uses debt financing, the business risk exposure for the firm's common shareholders will . In addition, Free If the project is financed using 100% equity capital, then Free Spirit's return on equity (ROE) on the project will be Spirit's earnings per share (EPS) will be 7.60% Alternatively, Free Spirit Industries Inc.'s CFO is also considering financing the project with 50% debt and 50% eque 8.80% The interest rate on the company's debt will be 10%. Because the company will finance only 50% of the project with equity, it will have only Spirit Industries Inc.'s ROE and the company's EPS will be if management de 6.80% ares outstanding. Free hance the project with 8.00% 50% debt and 50% equity. When a firm uses debt financing, the business risk exposure for the firm's common shareholders will Consider the following case of Free Spirit Industries Inc.: Suppose Free Spirit Industries Inc. is considering a project that will require $350,000, in assets. . The project is expected to prod $1.40 ings before interest and taxes (EBIT) of $40,000. . Common equity outstanding w The company incurs a tax rate boo shares. $1.50 $1.59 $1.87 $1.78 al, then Free Spirit's return on equity (ROE) on the project will be . In addition, Free If the project is financed using 100% ea Spirit's earnings per share (EPS) will be Alternatively, Free Spirit Industries Inc.'s CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the company's debt will be 10%. Because the company will finance only 50% of the project with equity, it will have only 7,500 shares outstanding, Free Spirit Industries Inc.'s ROE and the company's EPS will be if management decides to finance the project with 50% debt and 50% equity. When a firm uses debt financing, the business risk exposure for the firm's common shareholders will Consider the following case of Free Spirit Industries Inc.: Suppose Free Spirit Industries Inc. is considering a project that will require $350,000 in assets. The project is expected to produce earnings before interest and taxes (EBIT) of $40,000. Common equity outstanding will be 15,000 shares. The company incurs a tax rate of 30%. If the project is financed using 100% equity capital, then Spirit's earnings per share (EPS) will be 9.00 and $2.10, respectively 9.45 and $1.99, respectively 10.35 and $2.31, respectively 7.65 and $1.79, respectively Alternatively, Free Spirit Industries Inc.'s CFO is also consi company's debt will be 10%. Because the company will fin Spirit Industries Inc.'s ROE and the company's EPS will be 50% debt and 50% equity. When a firm uses debt financing, the business risk exposure for the firm's common shareholders will 2) on the project will be In addition, Free 50% debt and 50% equity capital. The interest rate on the equity, it will have only 7,500 shares outstanding, Free if management decides to finance the project with Consider the following case of Free Spirit Industries Inc.: Suppose Free Spirit Industries Inc. is considering a project that will require $350,000, in assets. . The project is expected to produce earnings before interest and taxes (EBIT) of $40,000. Common equity outstanding will be 15,000 shares. The company incurs a tax rate of 30%. In addition, Free If the project is financed using 100% equity capital, then Free Spirit's return on equity (ROE) on the project will be Spirit's earnings per share (EPS) will be Alternatively, Free Spirit Industries Inc.'s CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the company's debt will be 10%. Because the company will finance only 50% of the project with equity, it will have only 7,500 shares outstanding. Free Spirit Industries Inc.'s ROE and the company's EPS will be if m decrease decides to finance the project with 50% debt and 50% equity. increase When a firm uses debt financing, the business risk exposure for the firm's common shareholders will
