Problem:

Midwest Packaging's ROE last year was only 5%; 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 $238,000. The firm has no plans to use preferred stock. Management projects an EBIT of $525,000 on sales of $7,000,000, and it expects to have a total assets turnover ratio of 2.6. Under these conditions, the tax rate will be 35%.

Required:

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

Note: Please provide full description.