What will be the projects ROE if it produces an EBIT of $55,000 and it finances 50% of the project with equity and 50% with debt? When calculating the tax effects, assume that Sombra Corp. as a whole will have a large, positive income this year.

A -24.94%

B -32.81%

C -26.25%

D -30.19%

The use of financial leverage (Increases, Decreases) the expected ROE, (Increases, Decreases) the probability of a large loss, and consequently (Increases, Decreases) the risk borne by stockholders. The greater the firms chance of bankruptcy, the (Higher, lower) its optimal debt ratio will be (A conservative, An Aggressive). manager is more likely to use debt in an effort to boost profits.