Problemmidwest packagings roe last year was only 3 but its, Ask an Expert

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Problem:

Midwest Packaging's ROE last year was only 3%; but its management has developed a new operating plan that calls for a debt-to-assets ratio of 50%, which will result in annual interest charges of $235,000. The firm has no plans to use preferred stock. Management projects an EBIT of $400,000 on sales of $5,000,000, and it expects to have a total assets turnover ratio of 2.9. Under these conditions, the tax rate will be 30%.

Required:

Question: If the changes are made, what will be the company's return on equity?

Note: Please provide reasons to support your answer.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91171867

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