Pacific Packaging's ROE last year was only 5%, but its management has developed a new operating plan that calls for a debt-to-capital ratio of 60%, which will result in annual interest charges of $238,000. The firm has no plans to use preferred stock and total assets equal total invested capital. Management projects an EBIT of $672,000 on sales of $7,000,000, and it expects to have a total assets turnover ratio of 3.8. Under these conditions, the tax rate will be 25%. If the changes are made, what will be the company's return on equity? Do not round intermediate calculations. Round your answer to two decimal places.

Pacific Packaging's ROE last year was only 5%, but its management has developed a new operating plan that calls for a debt-to-capital ratio of 60%, which will result in annual interest charges of $238,000. The firm has no plans to use preferred stock and total assets equal total invested capital. Management projects an EBIT of $672,000 on sales of $7,000,000, and it expects to have a total assets turnover ratio of 3.8. Under these conditions, the tax rate will be 25%. If the changes are made, what will be the company's return on equity? Do not round intermediate calculations. Round your answer to two decimal places.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter13: Capital Structure Concepts

Section: Chapter Questions

Problem 6P

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