Reference no: EM132459588

Balance sheets and income statements for Johnson & Johnson follow. Refer to these financial statements to answer the requirements.

Problem (a) Compute net operating profit after tax (NOPAT) for 2008. Assume that the combined federal and statutory rate is: 37.1%.

Treat other (income) expense, net as non-operating. Round your answer to the nearest whole number.

2008 NOPAT = $Answer

Problem (b) Compute net operating assets (NOA) for 2008 and 2007.

2008 NOA = $Answer

2007 NOA = $Answer

Problem (c) Compute RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2008. Do not use NOPM x NOAT to caculate RNOA. (Do not round until your final answers. Round answers to two decimal places.)

2008 RNOA = Answer

%

2008 NOPM = Answer

%

2008 NOAT = Answer

Problem (d) Compute net nonoperating obligations (NNO) for 2008 and 2007. Confirm the relation: NOA = NNO + Stockholders' equity.

2008 NNO = $Answer

2007 NNO = $Answer

Problem (e) Compute return on equity (ROE) for 2008. (Round your answers to two decimal places. Do not round until your final answer.)

2008 ROE =Answer

%

Problem (f) Infer the nonoperating return component of ROE for 2008. (Use answers from above to calculate. Round your answer to two decimal places.)

2008 nonoperating return = Answer

%

Problem (g) Comment on the difference between ROE and RNOA. Which of the following statements best describes the inference from the difference between JNJ's ROE and RNOA?

ROE>RNOA implies that JNJ's equity has grown faster than its NOA. The faster increase of equity compared to NOA allows higher dividends to be paid to JNJ's stockholders.

RNOA greater than ROE implies that JNJ's stockholders are funding a significant amount of liquidity in the form of cash and investments in marketable securities.

ROE>RNOA implies that JNJ has taken on too much financial leverage. The high financial leverage results in a higher interest rate on JNJ's debt, therefore the cost of debt is greater.

ROE>RNOA implies that JNJ has increased its financial leverage during the period. The increase in financial leverage also increases JNJ's risk, therefore increasing the expected ROE by JNJ's stockholders.