Make the following assumptions about those 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.

$ millions 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 Required

a. Compute net operating profit after tax (NOPAT) for the EMI investees.

b. Compute net operating assets (NOA) and net nonoperating obligations (NNO) for the EMI investees.

c. Following the process in Analyst Adjustments box 9.1, reformulate the following ratios for Cummins for 2015. For simplicity only, use year-end balance sheet numbers provided instead of averages.
• RNOA • NOPM • NOAT • ROE • Financial leverage

d. In your opinion, does the equity method of accounting for these investments obscure the economic picture? Explain.