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2. Business and financial risk The impact of financial leverage on return on equity and earnings per share Consider the following case of Green Rabbit Transportation Inc: Suppose Green Rabbit Transportation Inc, is considering a project that will require 5,350,000 in assets. - The company is small, so it is exempt from the interest deduction limitabon under the new tax Isw. - The project is expected to produce earnings before interest and taxes (EBIT) of 555,000 . - Common equity outstanding will be 15,000 shares. - The company incurs a tax rate of 25%. If the project is financed using 100% equity capital, then Green Rabbit Transportation Incis return on equity (ROE) on the project will be In addition, Green Rabbit's earnings per share (EPS)-will be Alternatively, Green Rabbit Transportation 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 11%. Because the company will finance only 50% of the project with equity, it will have only 7,500 shares outstanding. Green Rabbit Transportation Incis ROE and the company's EPS will be. fmanagement decides to firance the project with 50% debt and 50% equity. Typically, using financial leverage will a project's expected ROE