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BBM's ROE last year was 5 percent, but its management has developed a new operating plan designed to improve things. The new plan calls for
BBM's ROE last year was 5 percent, but its management has developed a new operating plan designed to improve things. The new plan calls for a total debt ratio of 50%, which will result in interest charges of $300 per year. Management projects an EBIT of $1,000 on sales of 10,000, and it expects to have a total assets turnover ratio of 2.0. Under these conditions, the average tax rate will be 30 percent. If the changes are made. What return on assets will BBM earn? What is ROE? What is the degree of financial leverage?
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