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 60%, which will result in annual interest charges of $300,000. The firm has no plans to use preferred stock. Management projects an EBIT of $1,000,000, on sales of $10,000,000, and it expects to have a total turnover ratio of 2.0. Under these conditions, the tax rate will be 34%. If the changes are made, what will be the company’s return on equity?
