Question

Identifying Operating and Nonrecurring Income Components

Following is the The Dow Chemical Company income statement.

Net sales	$58,167	$57,080
Cost of sales	47,464	47,594
Research and development expenses	1,647	1,747
Selling, general, and administrative expenses	3,106	3,024
Amortization of intangibles	436	461
Goodwill and other intangible asset impairment losses	50	-
Restructuring charges (credits)	(3)	(22)
Asbestos-related charge	78	-
Equity in earnings of nonconsolidated affiliates	835	1,034
Sundry income (expense)—net	(27)	2,554
Interest income	51	41
Interest expense and amortization of debt discount	983	1,101
Income before income taxes	5,265	6,804
Provision for income taxes	1,426	1,988
Net income	$3,839	$4,816

equired

a. Identify the components in its statement that you would consider operating.
b. Identify those components that you would consider nonrecurring.

($ millions) For Year Ended	December 31		a.	b.
	2014	2013	Operating?	Nonrecurring?
Net sales	$58,167	$57,080	YesNo	YesNo
Cost of sales	47,464	47,594	YesNo	YesNo
Research and development expenses	1,647	1,747	YesNo	YesNo
Selling, general, and administrative expenses	3,106	3,024	YesNo	YesNo
Amortization of intangibles	436	461	YesNo	YesNo
Goodwill and other intangible asset impairment losses	50	-	YesNo	YesNo
Restructuring charges (credits)	(3)	(22)	YesNo	YesNo
Asbestos-related charge	78	-	YesNo	YesNo
Equity in earnings of nonconsolidated affiliates	835	1,034	YesNo	YesNo
Sundry income (expense)—net	(27)	2,554	YesNo	YesNo
Interest income	51	41	YesNo	YesNo
Interest expense and amortization of debt discount	983	1,101	YesNo	YesNo
Income before income taxes	5,265	6,804
Provision for income taxes	1,426	1,988	YesNo	YesNo
Net income	$3,839	$4,816

c. Compute net operating profit after taxes (NOPAT) and net operating profit margin (NOPM) for each year.
Assume a statutory tax rate of 35%.

	2014	2013
NOPAT (Round your answer to the nearest million dollar.)	$ million	$ million
NOPM (Round your answer to one decimal place.)	%	%

I can't get NoPat right...someone already answered this question on chegg but the answer for Nopat is wrong. please help.

Answer 1

($ millions) For Year Ended	December 31		a.	b.
Particulars	2014	2013	Operating?	Nonrecurring ?
Net sales	$58,167	$57,080	Yes	No
Cost of sales	47,464	47,594	Yes	No
Research and development expenses	1,647	1,747	No	Yes
Selling, general, and administrative expenses	3,106	3,024	Yes	No
Amortization of intangibles	436	461	Yes	No
Goodwill and other intangible asset impairment losses	50	-	No	Yes
Restructuring charges (credits)	(3)	(22)	No	Yes
Asbestos-related charge	78	-	No	Yes
Equity in earnings of non consolidated affiliates	835	1034	No	Yes
Sundry income (expense)—net	(27)	2554	Yes	No
Interest income	51	41	Yes	No
Interest expense and amortization of debt discount	983	1101	Yes	No
Income before income taxes	5265	6804	Yes	No
Provision for income taxes	1426	1988	Yes	No
Net income	3839	4816	Yes	No

c) Computation of Net operating profit after taxes (NOPAT) :

Particulars	2014	2013
Net Sales	58167	57080
Sundry income (expense)—net	(27)	2554
Interest income	51	41
Gross Income :	58191	59675
Less : Operating expenses
Cost of Sales	47464	47594
Selling, general, and administrative expenses	3106	3024
Amortization of intangibles	436	461
Interest expense and amortization of debt discount	983	1101
	51989	52180
Net operating profit before taxes	6202	7495
Provision for income taxes-35%	2170	2623
Net operating Profit After taxes (NOPAT)	4032	4872

Computation of Net Operating Profit Margin :

Particulars	2014	2013
(i) NOPAT	4032	4872
(ii) Net Sales	58167	57080
(III) Net Operating Profit Margin = (i)/(ii)	6.93%	8.54%