Balance sheets and income statements for \(3 \mathrm{M}\) Company follow.

\section*{Required}

a. Compute net operating profit after tax (NOPAT) for 2007 and 2006. Assume that combined federal and state statutory tax rates are \(35.9 \%\) for 2007 and \(36.0 \%\) for 2006 .

b. Compute net operating assets (NOA) for 2007 and 2006

c. Compute and disaggregate 3M's RNOA into net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2007 and 2006; the 2005 NOA is \(\$ 12,776\) million. Has its RNOA improved or worsened? Explain why.

d. Compute net nonoperating obligations (NNO) for 2007 and 2006. Confirm the relation: \(\mathrm{NOA}=\) \(\mathrm{NNO}+\) Stockholders' equity.

e. Compute return on equity (ROE) for 2007 and 2006. (Stockholders' equity in 2005 is \(\$ 10,395\) million.)

f. What is the nonoperating return component of ROE for 2007 and 2006?
g. Comment on the difference between ROE and RNOA. What inference can we draw from this comparison?

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Income Statement Year ended December 31 ($ millions) Net sales..... Operating expenses 2007 2006 2005 $24,462 $22,923 $21,167 Cost of sales.... 12,735 11,713 10,408 Selling, general and administrative expenses 5,015 5,066 4,631 Research, development and related expenses 1,368 1,522 1,274 Gain on sale of businesses..... (849) (1,074) Total 18,269 17,227 16,313 Operating income... 6,193 5,696 4,854 Interest expense and income Interest expense. 210 122 82 Interest income. (132) (51) (56) Total... 78 71 26 Income before income taxes, minority interest and cumulative effect of accounting change. Provision for income taxes... Minority interest.... Income before cumulative effect of accounting change Cumulative effect of accounting change. Net income... 6,115 5,625 4,828 1,964 1,723 1,627 55 51 55 4,096 3,851 3,146 (35) $ 4,096 $ 3,851 $ 3,111