14. Problem 4.14 (Return on Equity)

eBookProblem Walk-Through

Pacific Packaging's ROE last year was only 2%, but its management has developed a new operating plan that calls for a debt-to-capital ratio of 40%, which will result in annual interest charges of $731,000. The firm has no plans to use preferred stock, and total assets equal total invested capital. Management projects an EBIT of $1,309,000 on sales of $17,000,000, and it expects to have a total assets turnover ratio of 1.3. Under these conditions, the tax rate will be 25%. If the changes are made, what will be the company's return on equity? Do not round intermediate calculations. Round your answer to two decimal places.

%