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Pomelo Company's ROE last year was only 3%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 60%, which a plans to use will résult in annual interest charges of P300,000. The firm has no preferred stock. Management projects an EBIT of P1,000,000 on sales os P10,000,000, and it expects to have a total assets turņover ratio of 2.0. Under thee conditions, the tax rate will be 34%. If the changes. are made, what will be the company's return on equity?

Pomelo Company's ROE last year was only 3%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 60%, which a plans to use will résult in annual interest charges of P300,000. The firm has no preferred stock. Management projects an EBIT of P1,000,000 on sales os P10,000,000, and it expects to have a total assets turņover ratio of 2.0. Under thee conditions, the tax rate will be 34%. If the changes. are made, what will be the company's return on equity?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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developed a new operating plan that calls for a debt-to-assets ratio of 60%, which Pomelo Company's ROE last year was only 3%; but its management has Problem 10 (Return on Equity) plans to use will résult in annual interest charges of P300,000. The firm has no preferred stock. Management projects an EBIT of P1,000,000 on sales os P10,000,000, and it expects to have a total assets turņover ratio of 2.0. Under these conditions, the tax rate will be 34%. If the changes. are made, what will be the company's return on equity?
Transcribed Image Text:developed a new operating plan that calls for a debt-to-assets ratio of 60%, which Pomelo Company's ROE last year was only 3%; but its management has Problem 10 (Return on Equity) plans to use will résult in annual interest charges of P300,000. The firm has no preferred stock. Management projects an EBIT of P1,000,000 on sales os P10,000,000, and it expects to have a total assets turņover ratio of 2.0. Under these conditions, the tax rate will be 34%. If the changes. are made, what will be the company's return on equity?
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