3. The following are summaries from financial statements for the warehouse retailer, Home Depot Inc. for fiscal year ending January 29, 2006: Summary Reformulated Balance Sheet, January 29, 2006 (in millions of dollars) 2006 2005 2006 Financial assets 757 456 Financial liabilities 4,085 Operating 43,725 38.564 Operating liabilities 13,488 assets Common equity 26,909 2005 2,159 12,703 24,158 44,482 39,020 44,482 39,020 Summary Reformulated Income Statement, Year Ended, January 29, 2006 (in millions of dollars) Sales 81,511 Core operating expenses 72,148 Core operating income 9,363 Taxes allocated to core operating income 3,474 Core operating income, after tax 5,889 Unsustainable operating income, after tax 182 Operating income, after tax 6,071 Where relevant, make all calculations for 2006 with beginning-of-period balance sheet numbers in the questions below. (a) Calculate the following from these statements: (i) Financial leverage at the end of fiscal year, 2005 (ii) Operating liability leverage at the end of fiscal year, 2005 (b) Home Depot estimates that it pays an implicit after-tax borrowing cost on its operating liabilities of 2% after tax. Calculate the rate of return it would have earned from its operations had it not used this supplier financing. (0) Calculate the return on net operating assets (RNOA) for the 2006. Also calculate the core return on net operating assets for the year. (d) Show that Core RNOA = Core Profit Margin * Asset Turnover (e) The firm has a net borrowing cost of 3.0% after tax. Calculate the return on common equity (ROCE) for 2006