****THIS IS ALL THE SAME QUESTION*****

Newtown Propane is considering a project that will require $650,000 in assets. The project will be financed with 100% equity. The company faces a tax rate of 35%. What will be the ROE (return on equity) for this project if it produces an EBIT (earnings before interest and taxes) of $160,000?

16.0%

16.8%

12.8%

12.0%

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

-5.7%

-6.9%

-6.3%

-6.0%

Newtown Propane is also considering financing the project with 50% equity and 50% debt. The interest rate on the companys debt will be 13%. What will be the projects ROE if it produces an EBIT of $160,000?

23.5%

24.7%

20.0%

22.3%

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 Newtown Propane as a whole will have a large, positive income this year.

-25.5%

-20.4%

-23.5%

-22.4%

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