E15.1. A One-Stop Forecast of Residual Operating Income (Easy) An analyst predicted the following: 1. Sales of $1,276 million. 2. Core profit margin of 5 percent. 3. 4. Asset turnover of 2.2. Core other operating income and unusual items are zero. The firm's required return for operations is 9 percent.

a. Apply formula 15.1 to calculate the residual operating income (ReO) implied by these forecasts.

b. How would Reol change if the analyst dropped her forecast of the core profit margin to 4.5 percent?

e. Given a 5 percent profit margin forecast, what level of asset turnover would yield neg ative residual operating income? E15.2. A Revised Valuation: PPE, Inc. (Easy) Refer to the pro forma for PPE, Inc. in Exhibit 15.1. Modify this pro forms for the follow- ing revised forecasts: 1. Sales are expected to grow at 6 percent from their Year 0 level of $124.90 million. 2. Core profit margins are expected to be 7.0 percent. 3. Asset turnovers (on beginning-of-year net operating assets) are expected to be 1.9. Then answer the following questions:

a. After revising the pro forms, calculate the value of a PPE share. There are 100 million shares outstanding.

b. If dividend payout is expected to be 40 percent of earnings each year, what do you expect the firm's position in net financial obligations to be at the end of Year 3?