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Compankes that use debt in their capital structure are sald to be using finandal leverage. Using leverage can Increase shareholder retums, but leverage also Increases the risk that shareholders bear. Consider the following case: Newtown Propane is onsidering a projed:that will require $550,000 in assets. Te project will be financed with 100% equity. TheKmpany faces a tax rate of 30%, what will be the RDE (return on equity) for this project if it produces an EEIT (earnings before interest and taxes) of $145,000? o 18.5% o 12.0% o 20.4% o 19.4% Determine what the project's ROE will be if its EBIT is-$55,000. When calculating the tax effects, assume that Newtown Propane as a whole will have a large, positive income this year. Q-77% 0-84% 0-74% 0-70% Newton Propane is alsoco sidering financing the project with 50% equity and 50% debt. The interest rate on the company's debt will be 13%. What wil be the project's ROE if it produces an EBIT of $145,000? o 27,8% o 23.6% o 30.6% o 20.9% what wil be the pro ers Roe if it produces an EBIT of-455,000 and it finances 50% of the project with equity and 50% with debt? when calculating the tax effects, assume that Newtown Propane as a whole will have a large, positive income this year O O O O -28.9% -27.7% -23.1% -26.6%

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