Suppose Lost Pigeon Aviation is considering a project that will require $250,000 in assets.

	The project is expected to produce earnings before interest and taxes (EBIT) of $60,000.
	Common equity outstanding will be 25,000 shares.
	The company incurs a tax rate of 30%.

If the project is financed using 100% equity capital, then Lost Pigeons return on equity (ROE) on the project will be (16.80%, 14.27%, 19.32%, or 17.64%) In addition, Lost Pigeons earnings per share (EPS) will be ( $1.76 , $1.26, $1.68, $1.85 , or $1.51) Alternatively, Lost Pigeon Aviations CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the companys debt will be 12%. Because the company will finance only 50% of the project with equity, it will have only 12,500 shares outstanding. . Lost Pigeon Aviations ROE and the companys EPS will be________________if management decides to finance the project with 50% debt and 50% equity. A. 21.42 and $2.14, respectively B. 30.24 and $2.90, respectively C. 27.72 and $2.65, respectively D. 25.20 and $2.52, respectively When a firm uses debt financing, the business risk exposure for the firms common shareholders will_____ A. Increase B. Decrease