Estimate company return on equity


Midwest Packaging's ROE last year was only 2%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 55%, which will result in annual interest charges of $140,000. The firm has no plans to use preferred stock. Management projects an EBIT of $468,000 on sales of $4,000,000, and it expects to have a total assets turnover ratio of 3.1. Under these conditions, the tax rate will be 30%. If the changes are made, what will be the company's return on equity?

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Finance Basics: Estimate company return on equity
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