How to generate interest expenses

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Reference no: EM131931630

Question: ABC's return on equity (net income / shareholders equity) was very poor last year, but management has come up with a plan to improve things. The new plan calls for a debt ratio (total liabilities/total assets) of 69 percent, which will generate interest expenses of $363,000 per year. Management projects that the operating profit margin (EBIT/Sales) will be 13.3 percent on sales of $15 million. They project a total asset turnover ratio (Sales/Total Assets) of 2.7 and a tax rate of 40 percent. Given that information, what will be ABC's ROE under the new plan? Show your answer as a decimal to three places. For example, if you calculated 12.3%, then you would input 0.123 as your answer).

Reference no: EM131931630

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