Wizard Co. is a small company and is considering a project that will require $700,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 25%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $160,000?

12.86%

11.14%

17.14%

18.00%

Determine what the projects ROE will be if its EBIT is $60,000. When calculating the tax effects, assume that Wizard Co. as a whole will have a large, positive income this year.

-6.08%

-6.4%

-7.36%

-5.44%

Wizard Co. is also considering financing the project with 50% equity and 50% debt. The interest rate on the companys debt will be 12%. What will be the projects ROE if it produces an EBIT of $160,000?

18.97%

26.55%

25.29%

21.50%

What will be the projects ROE if it produces an EBIT of $60,000 and it finances 50% of the project with equity and 50% with debt? When calculating the tax effects, assume that Wizard Co. as a whole will have a large, positive income this year.

-27.32%

-24.05%

-21.86%

-20.77%

The use of financial leverage ________ the expected ROE, ______ the probability of a large loss, and consequently ______ the risk borne by stockholders. The greater the firms chance of bankruptcy, the _______ its optimal debt ratio will be. _______ manager is more likely to use debt in an effort to boost profits.