E15.4. Analysis of Value Added (Medium) A firm has the following summary balance sheet (in millions of dollars):

Net operating assets Net financial obligations Common shareholders' equity 441 52 389 The firm is currently earning a return on net operating assets (RNOA) of 14 percent from sales of $857 million and after-tax operating income of $60 million. Its required re- turn on operations is 10 percent. Forecasts indicate that RNOA is likely to continue at the same level in the future with growth in sales of 3 percent per year and growth in net oper- ating assets to support the sales of 3 percent per year. Management is considering a plan to introduce new products that are expected to in- crease the sales growth rate to 4 percent a year and maintain the current profit margin of 7 percent. But the plan will require additional investment in net operating assets that will reduce the firm's asset turnover to 1.67. What effect will this plan have on the value of the firm?

Net operating assets Net financial obligations Common shareholders' equity 441 The firm is currently earning a return on net operating assets (RNOA) of 14 percent from sales of $857 million and after-tax operating income of $60 million. Its required re- turn on operations is 10 percent. Forecasts indicate that RNOA is likely to continue at the same level in the future with growth in sales of 3 percent per year and growth in net oper- ating assets to support the sales of 3 percent per year. Management is considering a plan to introduce new products that are expected to in- crease the sales growth rate to 4 percent a year and maintain the current profit margin of 7 percent. But the plan will require additional investment in net operating assets that will reduce the firm's asset turnover to 1.67. What effect will this plan have on the value of the firm?