Analysis and Interpretation of Profitability Balance sheets and income statements for Target Corporation follow.

Income statement
	2006	2005	2004
Sales	$51,271	$45,682	$40,928
Credit card revenues	1,349	1,157	1,097
Total revenues	52,620	46,839	42,025
Cost of sales	34,927	31,445	28,389
Selling, general and administrative expenses	11,185	9,797	8,657
Credit card expenses	776	737	722
Depreciation and amortization	1,409	1,259	1,098
Earnings before interest and income taxes	4,323	3,601	3,159
Net interest expense	463	570	556
Earnings before income taxes	3,860	3,031	2,603
Provisions for income taxes	1,452	1,146	984
Net earnings	$2,408	$1,885	$1,619

Balance Sheet
($ millions, except footnotes)	28-Jan-06	29-Jan-05
Assets
Cash and cash equivalents	$1,648	$2,245
Credit card receivables	5,666	5,069
Inventory	5,838	5,384
Other current assets	1,253	1,224
Total current assets	14,405	13,922
Property and equipment
Land	4,449	3,804
Buildings and improvements	14,174	12,518
Fixtures and equipment	3,219	2,990
Computer hardware and software	2,214	1,998
Construction-in-progress	1,158	962
Accumulated depreciation	-6,176	-5,412
Property and equipment, net	19,038	16,860
Other noncurrent assets	1,552	1,511
Total assets	$34,995	$32,293
Liabilities and shareholders' investment
Accounts payable	$6,268	$5,779
Accrued and other current liabilities	2,567	1,937
Current portion of long-term debt and notes payable	753	504
Total current liabilities	9,588	8,220
Long-term debt	9,119	9,034
Deferred income taxes	851	973
Other noncurrent liabilities	1,232	1,037
Shareholders' investment
Common stock	73	74
Additional paid-in-capital	2,121	1,810
Retained earnings	12,013	11,148
Accumulated other comprehensive income (loss)	-2	-3
Total shareholders' investment	14,205	13,029
Total liabilities and shareholders' equity	$34,995	$32,293

a) Compute net operating profit after tax (NOPAT) for 2006. Assume that the combined federal and statutory rate is: 38.3%. (Round your answer to the nearest whole number.)

(b) Compute net operating assets (NOA) for 2006 and 2005.

c) Compute Targets RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2006. (Do not round until final answer. Round two decimal places. Do not use NOPM x NOAT to calculate RNOA.)

(e) Compute return on equity (ROE) for 2006. (Do not round until final answer. Round answer two decimal places.)

(f) Infer the nonoperating return component of ROE for 2006. (Use answers from above to calculate. Round your answer to two decimal places.)

(g) Which of the following statements reflects the best inference we can draw from the difference between Target's ROE and RNOA?

A ROE>RNOA implies that Target's equity has grown faster than its NOA.

B ROE>RNOA implies that Target has taken on too much financial leverage.

C ROE>RNOA implies that Target is able to borrow money to fund operating assets that yield a return greater than its cost of debt; the excess accrues to the benefit of Target's stockholders.

D ROE>RNOA implies that Target has increased its financial leverage during the period.