Cummins Inc. reports investments in affiliated companies, consisting mainly of investments in nine manufacturing joint ventures. Cummins reports those investments on its balance sheet at $958 million and provides the following financial information on its investee companies in a footnote to its 10-K report. Equity Investee Financial Summary
As of and for the years ended Dec. 31
$ millions 2015 2014 2013
Net sales $5,946 $7,426 $7,799
Gross margin 1,265 1,539 1,719
Net income 521 630 690
Cummins' share of net income$273 $330 $325
Royalty and interest income 42 40 36
Total equity, royalty and interest from investees
$315 $370 $361
Current assets $2,458 $2,476
Noncurrent assets 1,539 1,667
Current liabilities (1,796) (1,875)
Noncurrent liabilities (284) (420)
Net assets $1,917 $1,848
Cummins' share of net assets $958 $956
Make the following assumptions about the above data.
All assets are operating assets.
All current liabilities are operating liabilities. Non-current liabilities are loans that bear interest at 8%.
EMI (Equity Method Investments) investees’ tax rate is 35%.
The following information is derived from the 2015 form 10-K for Cummins Inc., the investor company.
2015
Revenue $19,110
Net operating profit after tax (NOPAT) 1,420
Net nonoperating expense (NNE) 21
Net income attributable to Cummins Inc. 1,399
Net operating assets (NOA) 7,578
Net nonoperating obligations (NNO) (172)
Equity of Cummins Inc. shareholders 7,406
a. Compute net operating profit after tax (NOPAT) for the EMI investees.
Round to the nearest whole number.
b. Compute net operating assets (NOA) and net nonoperating obligations (NNO) for the EMI investees.