Pacific Packaging’s ROE last year was only 5%; but its management has developed a new operating plan that calls for a debt-to-capital ratio of 40%,

Pacific Packaging’s ROE last year was only 5%; 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 $128,000. The firm has no plans to use preferred stock and total assets equal total invested capital. Management projects an EBIT of $392,000 on sales of $4,000,000, and it expects to have a total assets turnover ratio of 1.9. 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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