Pomelo Company'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 a plans to use will résult in annual interest charges of P300,000. The firm has no preferred stock. Management projects an EBIT of P1,000,000 on sales os P10,000,000, and it expects to have a total assets turņover ratio of 2.0. Under thee conditions, the tax rate will be 34%. If the changes. are made, what will be the company's return on equity?

Pomelo Company'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 a plans to use will résult in annual interest charges of P300,000. The firm has no preferred stock. Management projects an EBIT of P1,000,000 on sales os P10,000,000, and it expects to have a total assets turņover ratio of 2.0. Under thee conditions, the tax rate will be 34%. If the changes. are made, what will be the company's return on equity?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 15P

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