Analysis and Interpretation of Profitability Balance sheets and income statements for 3M Company follow.

Consolidated Statements of Income
Years ended December 31 ($ millions)	2007	2006	2005
Net sales	$24,462	$22,923	$21,167
Operating expenses
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
Loss/(gain) from sale of business	(849)	(1,074)	--
Total operating expenses	18,269	17,227	16,313
Operating income	6,193	5,696	4,854
Interest expenses and income
Interest expense	210	122	82
Interest income	(132)	(51)	(56)
Total interest expense	78	71	26
Income before income taxes	6,115	5,625	4,828
Provision for income taxes	1,964	1,723	1,627
Net income including noncontrolling interest	4,151	3,902	3,201
Less: Net income attributable to noncontrolling interest	55	51	55
Net income	$ 4,096	$ 3,851	$ 3,146

Consolidated Balance Sheets
($ millions)	2007	2006
Assets
Current Assets
Cash and cash equivalents	$ 1,896	$ 1,447
Marketable securities-current	579	471
Accounts receivable-net	3,362	3,102
Inventories
Finished goods	1,349	1,235
Work in process	880	795
Raw materials and supplies	623	571
Total inventories	2,852	2,601
Other current assets	1,149	1,325
Total current assets	9,838	8,946
Marketable securities-noncurrent	480	166
Investments	298	314
Property, plant and equipment	18,390	17,017
Less: Accumulated depreciation	(11,808)	(11,110)
Property, plant and equipment-net	6,582	5,907
Goodwill	4,589	4,082
Intangible assets-net	801	708
Prepaid pension benefits	1,378	395
Other assets	728	776
Total assets	$ 24,694	$ 21,294
Liabilities
Current liabilities
Short-term borrowings and current portion of long-term debt	$ 901	$ 2,506
Accounts payable	1,505	1,402
Accrued payroll	580	520
Accrued income taxes	543	1,134
Other current liabilities	1,833	1,761
Total current liabilities	5,362	7,323
Long-term debt	4,019	1,047
Pension and postretirement benefits	--	--
Other liabilities	3,566	2,965
Total liabilities	12,947	11,335
Equity
3M Company shareholders' equity	9	9
Additional paid-in capital	2,785	2,484
Retained earnings	20,316	17,933
Treasury stock	(10,520)	(8,456)
Accumulated other comprehensive income (loss)	(843)	(2,011)
Total 3M Company shareholders' equity	11,747	9,959
Noncontrolling interest	--	--
Total equity	11,747	9,959
Total liabilities and equity	$ 24,694	$ 21,294

(a) Compute net operating profit after tax (NOPAT) for 2007. Assume that the combined federal and statutory rate is: 35.9% (Round your answer to the nearest whole number.) 2007 NOPAT =Answer($ millions) (b) Compute net operating assets (NOA) for 2007 and 2006. Treat noncurrent Investments as a nonoperating item. 2007 NOA =Answer($ millions) 2006 NOA =Answer($ millions) (c) Compute 3M's RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2007. (Round your answers to two decimal places. Do not round until your final answer. Do not use NOPM x NOAT to calculate RNOA.)

2007 RNOA =Answer% 2007 NOPM =Answer% 2007 NOAT =Answer (d) Compute net nonoperating obligations (NNO) for 2007 and 2006. 2007 NNO =Answer($ millions) 2006 NNO =Answer($ millions) (e) Compute return on equity (ROE) for 2007. (Round your answers to two decimal places. Do not round until your final answer.) 2007 ROE =Answer% (f) What is the nonoperating return component of ROE for 2007? (Round your answers to two decimal places.) Hint: Use your prior rounded answers to compute this answer. 2007 nonoperating return =Answer%

(g) Which of the following statements reflects the best inference we can draw from the difference between 3M's ROE and RNOA?

ROE > RNOA implies that 3M has taken on too much financial leverage.

ROE > RNOA implies that 3M is able to borrow money to fund operating assets that yield a return greater than its cost of debt.

ROE > RNOA implies that 3M's equity has grown faster than its NOA.

ROE > RNOA implies that 3M has increased its financial leverage during the period.