Question: RETURN ON EQUITY 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

RETURN ON EQUITY

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 45%, which will result in annual interest charges of $748,000. The firm has no plans to use preferred stock and total assets equal total invested capital. Management projects an EBIT of $1,904,000 on sales of $17,000,000, and it expects to have a total assets turnover ratio of 1.6. Under these conditions, the tax rate will be 35%. If the changes are made, what will be the company's return on equity?

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