Suppose Green Rabbit Transportation Inc. is considering a project that will require $250,000 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 $55,000. Common equity outstanding will be 30,000 shares. The company incurs a tax rate of 25%.

If the project is financed using 100% equity capital, then Green Rabbit Transportation Inc.s return on equity (ROE) on the project will be____. In addition, Green Rabbits 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 companys debt will be 10%. Because the company will finance only 50% of the project with equity, it will have only 15,000 shares outstanding. Green Rabbit Transportation Inc.s ROE and the companys 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 firms common shareholders will_____ .