An analyst predicted the following:

1. Sales of $1,276 million.

2. Core profit margin of 5 percent.

3. Asset turnover of 2.2.

4. Core other operating income and unusual items are zero.

The firm's required return for operations is 9 percent.

a. Apply formula 15.1 to calculate the residual operating income (ReOI) implied by these forecasts.

b. How would ReOI change if the analyst dropped her forecast of the core profit margin to 4.5 percent?

c. Given a 5 percent profit margin forecast, what level of asset turnover would yield negative residual operating income?