Example:Financial Leverage,EPS,and ROE-II Variability in ROE Current:ROE ranges from 6.25%to 18.75% Proposed:ROE ranges from 2.50%to 27.50% Variability in EPS Current:EPS ranges from $1.25 to $3.75 Proposed:EPS ranges from $0.50 to $5.50 ■ The variability in both ROE and EPS increases when financial leverage is increased7 Example: Financial Leverage, EPS, and ROE - II n Variability in ROE q Current: ROE ranges from 6.25% to 18.75% q Proposed: ROE ranges from 2.50% to 27.50% n Variability in EPS q Current: EPS ranges from $1.25 to $3.75 q Proposed: EPS ranges from $0.50 to $5.50 n The variability in both ROE and EPS increases when financial leverage is increased