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Consider the following case of Free Spirit industries Inc.: Suppose Free. Spirit industries Inc, is considering a project that will require $400,000 in assets. - The project is expected to produce earnings before interest and taxes (CEIT) of 360,000 . - Common equity outstanding will be 30,000 shares. - The company incurs a tax rate of 40%. If the project is financed using 100% equity capital, then free 5 pirit's return on equity (ROE) on the project will be In addition, Free Spirit's eamings per share (EPS) will be Alternatively, Free Spirit Industries Inc.' CFO is also considering financing the project with 50% debt and 50% equify capital, The interest rate an the company's debt will be 13%, Because the company will finance only 50% of the project with equity, it will have only 15,000 shares outstanding. Free Spirit Industries Incis ROE and the company's EPS will be if management decides to finance the project with So\%, debe and 50% equity: When a firm uses debt financing, the business risk exposure for the firm's common shareholders will Suppose Free Spirit Industries Inc. is considering a project that will require $400,000 in assets. - The project is expected to produce eamings before interest and taxes (EBIT) of $60,000. - Common equity outstanding will be 30,000 shares. - The company incurs a tax rate of 40%. If the project is financed using 100% equity capital, then Spirit's earnings per share (EPS) will be . In addition, Free Aiternatively, Free Spirit industries incis CFO is also consi 0% debt and 50% equity capital. The interest rate on the company's debt will be 13\%. Because the company will fir eauity, it will have only 15,000 shares outstanding. Free Spirit Industries Inci's ROE and the company's EPS will be f management decides to finance the project with 50% debt and 50% equity. When a firm uses debt financing, the business risk exposure for the firm's common shareholders will - Common equity outstanding will be 30,000 shares. - The company incurs a tax rate of 40%. If the project is financed using 100% equity capital, then Free Spirit's return on equity (ROE) on the project will be Spirit's earnings per share (EPS) will be Alternatively, Free Spirit Industries Inc.'s CFO is also considering financing the project with 50% debt and 50% equity capital. The int company's debt will be 13%. Because the company will finance only 50% of the project with equity, it will have anly 15,000 shares ot Spirit Industries Inc.'s ROE and the company's EPS will be 50% debt and 50% equity. decides to finance th. When a firm uses debt financing, the business risk exposure for the firm's common shareholders will

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