The impact of financial leverage on return on equity and earnings per share Consider the following case of Lost Pigeon Aviation: Suppose Lost Pigeon Aviation is considering a project that will require $200,000 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 20,000 shares. - The company incurs a tax rate of 25%. If the project is financed using 100% equity capital, then Lost Pigeon Aviation's return on equity (ROE) on the project will be . In addition, Lost Pigeon's earnings per share (EPS) will be Alternatively, Lost Pigeon Aviation's CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the company's debt will be 11%. Because the company will finance only 50% of the project with equity, it will have only 10,000 shares outstanding. Lost Pigeon Aviation's ROE and the company's EPS will be . if management decides to finance the project with 50% debt and 50% equity. Typically, using financial leverage will a project's expected ROE. The impact of financial leverage on return on equity and earnings per share Consider the following case of Lost Pigeon Aviation: Suppose Lost Pigeon Aviation is considering a project that will require $200,000 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 20,000 shares. - The company incurs a tax rate of 25%. If the project is financed using 100% equity capital, then Lost Pigeon Aviation's return on equity (ROE) on the project will be . In addition, Lost Pigeon's earnings per share (EPS) will be Alternatively, Lost Pigeon Aviation's CFO is also considering financing the project with 50% debt and 50% equity capital. The interest rate on the company's debt will be 11%. Because the company will finance only 50% of the project with equity, it will have only 10,000 shares outstanding. Lost Pigeon Aviation's ROE and the company's EPS will be . if management decides to finance the project with 50% debt and 50% equity. Typically, using financial leverage will a project's expected ROE