Problem
Pacific Packaging's ROE last year was only 5%; but its management has developed a new operating plan that cal's for a debt-to-capital ratio of 60%, which will result in annual interest charges of $300,000. The firm has no plans to use preferred stock and total assets equal total invested capital. Management projects an EBIT of $1, 365,000 on sales of $13,000,000, and it expects to have a total assets turnover ratio of 1.5. Under these conditions, the tax rate will be 30%. If the changes are made, what will be the company's return on equity?