YouaretryingtoestimateagrowthrateforLipCopInc.,arecordproducerand

distributor.Thefirmearned$100millioninafter-taxoperatingincomeoncapital

invested of $800 million last year. In addition, the firm reported net capital expenditure of

$25 million and an increase in noncash working capital of $15 million.

#1) Assumingthatthefirm'sreturnoncapitalandreinvestmentrateremain

unchanged, estimate the expected growth in operating income next year.

#2) Howwouldyouranswerto(a)changeifyouweretoldthatthefirm'sreturnon

capitalnextyearwillincreaseby2.5%?(Nextyear'sreturnoncapital=This

year's return on capital +2.5%)