Suppose Purple Turtle Group is considering a project that will require $600,000 in total assets. The project is expected to produce an EBIT (earnings before interest and taxes) of $70,000, and will be financed with 100% equity. The company has a 35% tax rate and has 10,000 shares of common stock outstanding.

The return on equity (ROE) on Purple Turtles project will be (6.06,7.58,8.34,9.10) .

If the project is financed with 100% equity, the Purple Turtles earnings per share (EPS) will be (3.18,4.32,4.55,5.01) .

Purple Turtles CFO is also considering financing this project with 50% debt and 50% equity. The interest rate on the companys debt is expected to be 9%. Because the company will finance only 50% of the project with equity, it will have only 5,000 shares outstanding. If the company decides to finance the project with 50% debt and 50% equity, the project's ROE will be (6.99,9.32,10.72,11.65) .

Purple Turtles EPS will be (4.47,5.59,6.15,6.71) if it finances this project with 50% equity and 50% debt.

Typically, the use of financial leverage will make the probability distribution of ROIC (stepper,flatter) .