Return to Equity
Pacific Packaging's ROE last year was only 3%; but its management has developed a new operating plan that calls for a debt-to-capital ratio of 40%, which will result in annual interest charges of $250,000. The firm has no plans to use preferred stock and total assets equal total invested capital. Management projects an EBIT of $535,000 on sales of $5,000,000, and it expects to have a total assets turnover ratio of 3.6. Under these conditions, the tax rate will be 40%. If the changes are made, what will be the company's return to equity? Do not round intermediate calculations. Round your answer to two decimal places.