Keep the Highest 3/5 3. The effect of financial leverage on ROE Companies that use debt in their capital structure are said to be using financial leverage, Using leverage cian increase chareholder refuris, but leverage also increases the risk that sharehoiders bear. Consider the following case: equity. The comparny faces a tax rate of 25%. What will be the ROE (return on equity) for this project if it produces ant Fart (earnings before intereut and taxes) of $140,000 ? 21.00% 23.10% 14.70% 17.85% Determine what the project's ROL will be if its EBIT is $50,000. When calculating the tax effects, assume that Westem Gas st thectric Ca. as a whole will have a large, positive income this year. Determine what the project's ROE will be if its EBII is 550,000. When calculating the tax effects, asturme that Westem Gas b flectric Co. as a whole will have a large, positive income this year. Western Gas \& Electric Co, ts also considering financing the project with 50% equity and 50% debt, The interest rete on the companyis debt will be 12\%. What will be the project's ROE if it produces an EBIT of $140,0007 33.00% 26,40% 36.30% 37.95% What will be the project's ROE if it produces an EBIT of 550,000 and it finances 50% of the project with equity and 50% with debt? When caliculating the tax effects, assume that Western Gas \&. Electric Co. as a whole will have a large, positive income this year. 31,20% 33.00% 26.40% 36.3096 37.95% What will be the project's ROE If it produces an EBIT of - $50,000 arid it finances 50% of the project with equity and 50% with debe? When calculating the tax effects, assume that Western Gas \& Electric Co. as a whole will have a large, positive income this year. The use of financial leverage the expected ROE, the probability of a large loss, and consegbenthy risk borne by stockholders. The greater the firm's chance of bankruptcy, the its optimal debt ratio will be. is more likely to use debt in an effort to boost profits