The effect of financial leverage on ROE

2. The effect of financial leverage on ROE Aa Aa Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear Consider the following case: Mammoth Pictures Inc. is considering a project that will require $650,000 in assets. The project will be financed witlh 10096 equity. The company faces a tax rate of 30%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $145,000? O 15.6% 9.4% 10.9% o Determine what the project's ROE will be if its EBIT is-$50,000. When calculating the tax effects, assume that Mammoth Pictures Inc. as a whole will have a large, positive income this year. O-4.3% O-4.6% 0-54% 0-59%