Suppose Lost Pigeon Aviation is considering a project that will require $350,000 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 $50,000. - 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 Lost Pgeon Aviation's return on equity (ROE) on the project will be addition, Lost Pigeon's eamings per share (EPS) will be Alematively, Lost Pigean Aviation's CFO is also considering financing the project with 50% debt and sow equity capital. The interest rate on the companys debe wil be 12%, Becaise the company wili nnance onlv sow of the nrolart wirh qquity, it will have only 15,000 shares outstanding. Lost debt and 50% equity If management dedies to finance the project with 50% When a firm uses debt financing, the businesa risk exposure for the firm's common shareholders wit