The following are summary income statement and balance sheet numbers for a firm (in millions of dollars). The firm has a required return for operations of 9%.

	2002	2003	2004	2005
Sales	1,906	1,985	2,064	2,147
Core operating expenses	1,773	1,846	1,919	1,997
Core operating income	133	139	145	150
Unusual operating income	0	0	(45)	60
	133	139	100	210
Net financial expense	7	8	8	9
Comprehensive income	126	131	92	201
Net operating assets	945	983	1,022	1,063
Net financial obligations	150	155	175	120
Common equity	795	828	847	943

Prepare a table on the next page giving the following for 2003- 2005. Use beginning-of-period balance sheet numbers in denominators.

Return on common equity (ROCE)

Return on net operating assets (RNOA)

Core return on net operating assets (Core RNOA)

Free cash flow

Net payments to common shareholders

Net payments to net debt holders

Asset turnover

Core profit margin

Growth rate for net operating assets

2. On the basis of these financial statements, forecast

Residual operating income for 2006 and 2007.

Abnormal operating income growth for 2007.

3. Value the equity using two methods:

(i) Residual operating income valuation

(ii) Abnormal operating income growth valuation

4. Calculate the enterprise price-to-book ratio implied by your valuation. Also, calculate the enterprise trailing and forward P/E ratios implied by your valuation.