Whenever a firm's ROCE exceeds the after tax cost of debt, EPS and ROE will increase in response to an increase in financial leverage.

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When a firm's ROCE (Return on Capital Employed) exceeds the after tax cost of debt, it means that the firm is generating higher returns on its invested capital than the cost of the debt it has taken on. This indicates that the firm is utilizing its capital effectively and efficiently. In such a scenario, increasing financial leverage (i.e. taking on more debt) can lead to an increase in EPS (Earnings per Share) and ROE (Return on Equity) because the cost of debt is lower than the returns generated by the invested capital. This is known as financial leverage or the amplification effect.

Whenever a Firm's ROCE Exceeds the After Tax Cost of Debt