Consider the following case of Lost Pigeon Aviation:

Suppose Lost Pigeon Aviation is considering a project that will require $$200,000$ in assets.

$$ The company is small, so it is exempt from the interest deduction limitation under the new tax law.

$$ The project is expected to produce earnings before interest and taxes $($EBIT$)$ of $$40,000.$

$$ Common equity outstanding will be $10,000$ shares.

$$ The company incurs a tax rate of $25\%.$

If the project is financed using $100\%$ equity capital, then Lost Pigeon Aviation$$s return on equity $($ROE$)$ on the project will be $\_\_\_\_\_\_.(17\mathrm{.}25\%$ or $15\%$ or $12\%$ or $12\mathrm{.}75\%)$ In addition, Lost Pigeon$$s earnings per share $($EPS$)$ will be $\_\_\_\_\_.($$$3\mathrm{.}15$ or $$2\mathrm{.}70$ or $$3$ or $$2\mathrm{.}10$ or $$2\mathrm{.}25)$

Alternatively, Lost Pigeon Aviation$$s CFO is also considering financing the project with $50\%$ debt and $50\%$ equity capital. The interest rate on the company$$s debt will be $11\%.$ Because the company will finance only $50\%$ of the project with equity, it will have only $5,000$ shares outstanding. Lost Pigeon Aviation$$s ROE and the company$$s EPS will be$\_\_\_(18\mathrm{.}49\%$ and $$3\mathrm{.}70,$ or $26\mathrm{.}10\%$ and $$5,$ or $16\mathrm{.}31\%$ and $$3\mathrm{.}48,$ or $21\mathrm{.}75\%$ and $$4\mathrm{.}35)$ if management decides to finance the project with $50\%$ debt and $50\%$ equity.

Typically, using financial leverage will $\_\_\_\_\_$ a project$$s expected ROE. $($INCREASE OR DECREASE$)$