The impact of financial leverage on return on equity and earnings per share Consider the following case of Green Rabbit Transportation Inc. Suppose Green Rabbit Transportation Inc. 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 Green Rabbit Transportation Inc.'s return on equity (ROE) on the project will be . In addition, Green Rabbit's 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 company's debt will be 12%. Because the company will finance only 50% of the project with equity, it will have only 12,500 shares outstanding. Green Rabbit Transportation Inc.'s ROE and the company's EPS will be 50% debt and 50% equity. if management decides to finance the project with As a firm uses more debt in its capital structure, lenders will usually the interest rate charged