Question: Coastal Packaging s ROE last year was only 3 percent but
Coastal Packaging’s ROE last year was only 3 percent, but its management has developed a new operating plan designed to improve things. The new plan calls for a total debt ratio of 60 percent, which will result in interest charges of $300 per year. Management projects an EBIT of $1,000 on sales of $10,000, and it expects to have a total assets turnover ratio of 2.0 times. Under these conditions, the average tax rate will be 30 percent. If the changes are made, what return on equity (ROE) will Coastal earn? What is the ROA?
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