Analysis and Interpretation of Profitability Balance sheets and income statements for Target Corporation follow Income Statement For Fiscal Years Ended ( millions) 2006 2005 2004 Sales $51,271 $45,682 $40,928 1,349 1,157 1,097 52,620 46,839 42,025 34,927 31,445 28,389 Credit card revenues Total revenues Cost of sales Selling, general and administrative expenses 11,185 9,797 8,657 Credit card expenses Depreciation and amortization Earnings before interest and income taxes 737 1,259 4,323 3,601 570 722 1,098 3,159 776 1,409 463 Net interest expense Earnings before income taxes Provisions for income taxes Net earnings 556 2,603 984 $2,408 $1,885 $1,619 3,860 3,031 1,452 1,146 Shareholders' investment Common stock Additional paid-in-capital Retained earnings Accumulated other comprehensive income (loss) Total shareholders' investment Total liabilities and shareholders' equity 73 2,121 2,013 74 1,810 11,148 14,205 13,029 $34,995 32,293 HINT: For Sales use "Total revenues" for your computations, when applicable (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.) 2006 NOPAT 0 million (b) Compute net operating assets (NOA) for 2006 and 2005. 2006 NOA $0 million 2005 NOA$ 0 million (c) Compute Target's 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.) 2006 RNOA0 2006 NOPM0 2006 NOAT0 (d) Compute net nonoperating obligations (NNO) for 2006 and 2005. 2006 NNO$0 2005 NNO 0 million million (e) Compute return on equity (ROE) for 2006. (Do not round until final answer. Round answer two decimal places.) 2006 ROE0 (f) Infer the nonoperating return component of ROE for 2006. (Use answers from above to calculate. Round your answer to two decimal places.) 2006 nonoperating return0 (g) Which of the following statements reflects the best inference we can draw from the difference between Target's ROE and RNOA? ROE>RNOA implies that Target's equity has grown faster than its NOA. ROE> RNOA implies that Target has taken on too much financial leverage. OROE 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 OROE RNOA implies that Target has increased its financial leverage during the period Analysis and Interpretation of Profitability Balance sheets and income statements for Target Corporation follow Income Statement For Fiscal Years Ended ( millions) 2006 2005 2004 Sales $51,271 $45,682 $40,928 1,349 1,157 1,097 52,620 46,839 42,025 34,927 31,445 28,389 Credit card revenues Total revenues Cost of sales Selling, general and administrative expenses 11,185 9,797 8,657 Credit card expenses Depreciation and amortization Earnings before interest and income taxes 737 1,259 4,323 3,601 570 722 1,098 3,159 776 1,409 463 Net interest expense Earnings before income taxes Provisions for income taxes Net earnings 556 2,603 984 $2,408 $1,885 $1,619 3,860 3,031 1,452 1,146 Shareholders' investment Common stock Additional paid-in-capital Retained earnings Accumulated other comprehensive income (loss) Total shareholders' investment Total liabilities and shareholders' equity 73 2,121 2,013 74 1,810 11,148 14,205 13,029 $34,995 32,293 HINT: For Sales use "Total revenues" for your computations, when applicable (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.) 2006 NOPAT 0 million (b) Compute net operating assets (NOA) for 2006 and 2005. 2006 NOA $0 million 2005 NOA$ 0 million (c) Compute Target's 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.) 2006 RNOA0 2006 NOPM0 2006 NOAT0 (d) Compute net nonoperating obligations (NNO) for 2006 and 2005. 2006 NNO$0 2005 NNO 0 million million (e) Compute return on equity (ROE) for 2006. (Do not round until final answer. Round answer two decimal places.) 2006 ROE0 (f) Infer the nonoperating return component of ROE for 2006. (Use answers from above to calculate. Round your answer to two decimal places.) 2006 nonoperating return0 (g) Which of the following statements reflects the best inference we can draw from the difference between Target's ROE and RNOA? ROE>RNOA implies that Target's equity has grown faster than its NOA. ROE> RNOA implies that Target has taken on too much financial leverage. OROE 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 OROE RNOA implies that Target has increased its financial leverage during the period