1. A supermarket chain with $120 million in annual sales and an asset turnover of 6.0 ponders whether to institute a customer membership program. It currently earns a profit margin of 1.6% on sales. Its marketing research indicates that a customer membership program would increase sales by $25 million and would require an additional investment in inventories of $2 million but no additional retail floor space. Costs to run the membership program, including the discounts offered to members, would reduce profit margins to 1.5%. What would be the effect on the firm's return on net operating assets of adopting the customer membership program? 2. A share trades at a price-to-book ratio of 0.7. An analyst who forecasts an ROCE of 12 percent each year in the future, and sets the required equity return at 10 percent, recommends a hold position. Does his recommendation agree with his forecast? Why? 3. A firm with a book value of $15.60 per share and 100 percent dividend payout is expected to have a return on common equity of 15 percent per year indefinitely in the future. Its cost of equity capital is 10 percent. a. Calculate the intrinsic price-to-book ratio. b. Suppose this firm announced that it was reducing its payout to 50 percent of earnings in the future. Consider two scenarios 1). the dividend that is not paid out is invested at the same ROCE of 15%; 2). the dividend that is not paid out is invested at the required rate of return 10%. What is the new intrinsic price-to-book ratio in these two scenarios?