Direct Computation of Nonoperating Return Balance sheets and income statements for 3M Company follow. 3M COMPANY Consolidated Statements of Income For Years Ended December 31 ($ millions) Net sales Operating expenses Cost of sales Selling, general and administrative expenses Research, development and related expenses Gain on sale of businesses Total operating expenses Operating income Other expense, net* 2018 2017 $32,765 $31,657 16,682 16,055 7,602 6,626 1,821 1,870 (547) (586) 25,558 23,965 7,207 7,692 207 144 Income before income taxes 7,000 7,548 Provision for income taxes. 1,637 2,679 Net income including noncontrolling interest 5,363 4,869 Less: Net income attributable to noncontrolling interest 14 11 Net income attributable to 3M $5,349 $4,858 * Interest expense, gross is $350 million in 2018 and $322 million in 2017. Current assets 3M COMPANY Consolidated Balance Sheets At December 31 ($ millions) Cash and cash equivalents Marketable securities Accounts receivable 2018 2017 $2,853 $3,053 380 1,076 5,020 4,911 Total inventories 4,366 4,034 Prepaids 741 937 Other current assets 349 266 Total current assets Property, plant and equipment, net Goodwill Intangible assets-net Other assets Total assets Current liabilities 13,709 14,277 8,738 8,866 10,051 10,513 2,657 2,936 1,345 1,395 $36,500 $37,987 Short-term borrowings and current portion of long-term debt $1,211 $1,853 Accounts payable 2,266 1,945 Accrued payroll 749 870 Accrued income taxes 243 310 Other current liabilities 2,775 2,709 Total current liabilities 7,244 7,687 Long-term debt 13,411 12,096 Pension and postretirement benefits 2,987 3,620 Other liabilities 3,010 2,962 Total liabilities $26,652 $26,365 3M Company shareholders' equity Common stock par value Additional paid-in capital Retained earnings Treasury stock Accumulated other comprehensive income (loss) Total 3M Company shareholders' equity Noncontrolling interest Total equity Total liabilities and equity 9 9 5,643 5,352 40,636 39,115 (29,626) (25,887) (6,866) (7,026) 9,796 11,563 52 59 9,848 11,622 $36,500 $37,987 In 2018, 3M's return on equity (ROE) is 50.09% and its return on net operating assets (RNOA) is 25.89%. In 2018, 3M's return on equity (ROE) is 50.09% and its return on net operating assets (RNOA) is 25.89%. Required a. Compute net nonoperating expense (NNE) and net operating profit after tax (NOPAT). Assume a tax rate of 22%. Note: Round answers to the nearest million. 2018 NNE: $ 0 million 2018 NOPAT: $ 0 million b. Compute net nonoperating obligations (NNO). 2018 NNO: $ 0 million 2017 NNO: $ 0 million 4 c. Compute financial leverage (FLEV). Note: Round your answer to three decimal places (for example, enter 6.776 for 6.77555). 0 d. Compute NNEP and Spread. Note: Round percentages to two decimal places (for example, enter 6.66% for 6.6555%). NNEP: 0 % Spread: 0 96 ININET Spread: 0 % e. Compute the noncontrolling interest ratio (NCI ratio). Note: Round your answers to four decimal places (for example, enter 6.7756 for 6.775555). NCI ratio: 0 = f. Confirm the relation: ROE [RNOA+ (FLEV x Spread)] NCI ratio. Note: For FLEV, round amount to three decimal places (for example, enter 6.776 for 6.775555). Note: For RNOA and Spread round percentages to two decimal places (for example, enter 6.66% for 6.6555%). Note: Round NCI ratio, round amount to four decimal places (for example, enter 1.7756 for 1.77555). Note: Round ROE to the nearest whole percentage. RNOA +(FLEV x Spread 0% +( 0x x NCI Ratio 0% X = ROE 0 )= 0%