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Analysis and Interpretation of Profitability

(a) Compute net operating profit after tax (NOPAT) for 2016. Assume that the combined federal and state statutory tax rate is 37%. (Round to the nearest whole number.)

2016 NOPAT = ?($ millions) (b) Compute net operating assets (NOA) for 2016 and 2015.

2016 NOA = ?($ millions) 2015 NOA = ?($ millions) (c) Compute Costcos RNOA, net operating profit margin (NOPM) and net operating asset turnover (NOAT) for 2016. (Do not round until final answer. Round two decimal places. Do not use NOPM x NOAT to calculate RNOA)

2016 RNOA = ?% 2016 NOPM = ?% 2016 NOAT = ? (d) Compute net nonoperating obligations (NNO) for 2016 and 2015.

2016 NNO = ?($ millions) 2015 NNO = ?($ millions) (e) Compute return on equity (ROE) for 2016. (Do not round until final answer. Round answer two decimal places)

2016 ROE = ?% (f) Infer the nonoperating return component of ROE for 2016. (Use answers from above to calculate. Round two decimal places.)

?%

Multiple choice

(g) What does the relation between ROE and RNOA suggest about Costco's use of equity capital?

a ) ROE > RNOA implies that Costco's equity has grown faster than its NOA.

b ) ROE > RNOA implies that Costco has taken on too much financial leverage.

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

d )ROE > RNOA implies that Costco increased its financial leverage during the period.

Balance sheets and income statements for Costco Wholesale Corporation follow. Costco Wholesale Corporation Consolidated Statements of Earnings For Fiscal Years Ended (S millions) August 28, 2016 August 30, 2015 August 31, 2014 Revenue $116,073 2,646 118,719 113,666 2,533 116,199 5110,212 2,428 112,640 Net Sales Membership fees Total revenue Operating expenses Merchandise costs Selling, general and administrative Preopening expenses 102,901 12,068 78 3,672 101,065 11,445 65 3,624 98,458 10,899 63 3,220 Operating Income Other income (expense) (133) 80 3,619 1,243 2,376 (26) $2,350 (124) 104 3,604 1,195 2,409 (32) 2,377 Interest expense (113) Interest income and other, net 90 3,197 1,109 2,088 (30) $2,058 Income before income taxes Provision for income taxes Net income including noncontrolling interests Net income attributable to noncontrolling interests Net income attributable to Costco

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