Problem:
Midwest Packaging's ROE last year was only 4%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 45%, which will result in annual interest charges of $539,000. The firm has no plans to use preferred stock. Management projects an EBIT of $924,000 on sales of $11,000,000, and it expects to have a total assets turnover ratio of 3.6. Under these conditions, the tax rate will be 40%.
Required:
Question: If the changes are made, what will be the company's return on equity?
Note: Show all workings.