Companies that use debt in their capital structure are said to be using financial leverage....
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Companies that use debt in their capital structure are said to be using financial leverage. Using leverage can increase shareholder returns, but leverage also increases the risk that shareholders bear. Consider the following case: Flowers by Irene Inc. is a small company and is considering a project that will require $550,000 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 $155,000?
Options: 14.80%
12.68%
21.14%
23.25%
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