ABC's return on equity (net income / shareholders equity) was very poor last year, but management has come up with a plan to improve things.
The new plan calls for a debt ratio (total liabilities/total assets) of 74 percent, which will generate interest expenses of $327,000 per year. Management projects that the operating profit margin (EBIT/Sales) will be 13.4 percent on sales of $14 million.
They project a total asset turnover ratio (Sales/Total Assets) of 2.2 and a tax rate of 40 percent. Given that information, what will be ABC's ROE under the new plan? Show your answer as a decimal to three places.
For example, if you calculated 12.3%, then you would input 0.123 as your answer).