You are trying to estimate a growth rate for HipHop Inc., a record producer and distributor. The firm earned $100 million in after-tax operating income on capital invested of $800 million last year. In addition, the firm reported net capital expenditures of $25 million and an increase in noncash working capital of $15 million.

a. Assuming that the firm's return on capital and reinvestment rate remain un- changed, estimate the expected growth in operating income next year.

b. How would your answer to (a) change if you were told that the firm's return on capital next year will increase by 2.5%? (Next year's return on capital = This year's return on capital + 2.5%.)