a)Why are reformulated statements necessary to discover operating profitability? (5 marks)

b)Use a cost of capital for operations of 9%.

Sales revenue is forecasted to grow at a 6% rate per year in the future, on a constant asset turnover of 1.25.Operating profit margins of 14% are expected to be earned each year.

ATO =1.25growth of sale 6%growth ofNOA6% = Sale * 1/ATO

i)Forecast return on net operating assets (RNOA) for 2003. (2 marks)

ii) Forecast residual operating income for 2003. (3 marks)

ii)Value the shareholders' equity at the end of the 2002 fiscal year using residual income methods. (5 marks)