Year 0 sales of XYZ firm are $124.9 million. Sales are expected to grow at 6% from their year 0 level. Core operating profit margin is expected to be 8%. Asset turnover on beginning of period NOA is expected to be 1.8. the payout ratio is expected to be 40%. The required return on operations is 10% and the after tax cost of debt is 4%. The following forecasts were made:

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Sales (growing at 6%) Operating income (PM = 0.08) NOA ReOl (10% charge) Growth rate for Reol Year 0 124.90 9.80 74.42 What is the expected residual operating income in year 2? Year 1 132.39 10.59 Year 2 140.34 11.23 Year 3 148.76 11.90 Sales (growing at 6%) Operating income (PM = 0.08) NOA ReOl (10% charge) Growth rate for Reol Year 0 124.90 9.80 74.42 What is the expected residual operating income in year 2? Year 1 132.39 10.59 Year 2 140.34 11.23 Year 3 148.76 11.90

Answer rating: 100% (QA)

To calculate the expected residual operating income in Year 2 we first need to determine the net ope... View the full answer