Share
Explore BrainMass

Innovation's financial statements for 2007

The following are key numbers from Innovation's financial statements for 2007.

Net operating assets, end of year $42,104.0 million
Net financial obligations, end of year 12,357.0 million
Common equity, end of year 29,747.0 million
Common shares outstanding, end of year 1,645.6 million
Core return on net operating assets 19.0%
Sales growth rate 8.8%
Required return for operation 12.3%

a. Forecast operating income and residual operating income for 2008 if Innovation maintains the same core RNOA as in 2007.

b. Calculate the per-share value of the equity if Innovation were to maintain this probability in the future and if residual earnings were to grow at the 2007 sales growth rate.

c. Calculate the expected rate of return on buying Innovation's stock at $95 under the scenario in part b. Is $95 cheap or expensive?

Solution Preview

The following are key numbers from Innovation's financial statements for 2007.

Net operating assets, end of year $42,104.0 million
Net financial obligations, end of year 12,357.0 million
Common equity, end of year 29,747.0 million
Common shares outstanding, end of year 1,645.6 million
Core return on net operating assets 19.0%
Sales growth rate 8.8%
Required return for operation 12.3%

a. Forecast operating income and residual operating income for 2008 if Innovation maintains the same core RNOA as in 2007.

First we need to find the ...

Solution Summary

This solution is comprised of a detailed explanation to forecast operating income and residual operating income for 2008 if Innovation maintains the same core RNOA as in 2007, calculate the per-share value of the equity if Innovation were to maintain this probability in the future and if residual earnings were to grow at the 2007 sales growth rate, and calculate the expected rate of return on buying Innovation's stock at $95 under the scenario in part b. Is $95 cheap or expensive.

$2.19