Compute ROE and Nonoperating Return with Negative NNO and No Noncontrolling Interest

Refer to the balance sheets and income statement below for Facebook Inc.

FACEBOOK INC.Consolidated Statement of IncomeFor Year Ended December 31, $ millions2018Revenue$57,234Costs and expensesCost of revenue9,355Research and development10,273Marketing and sales7,846General and administrative3,451Total costs and expenses30,925Income from operations26,309Interest and other income (expense), net448Income before provision for income taxes26,757Provision for income taxes3,249Net income$23,508

FACEBOOK INC.Consolidated Balance SheetAt December 31, $ millions20182017Current assetsCash and cash equivalents$10,019$8,079Marketable securities31,09533,632Accounts receivable, net7,7775,832Prepaid expenses and other current assets1,7791,020Total current assets50,67048,563Property and equipment, net24,68313,721Intangible assets, net1,2941,884Goodwill18,30118,221Other assets$2,576$2,135Total assets$97,524$84,524Current liabilitiesAccounts payable$820$380Partners payable541390Accrued expenses and other current liabilities5,5092,892Deferred revenue and deposits14798Total current liabilities7,0173,760Other liabilities6,1906,417Total liabilities13,20710,177Stockholders' equityCommon stock and additional paid-in capital42,90640,584Accumulated other comprehensive loss(760)(227)Retained earnings42,17133,990Total stockholders' equity84,31774,347Total liabilities and stockholders' equity$97,524$84,524

Use these financial statements to answer the requirements.

Required

For the 2018 fiscal year, Facebook had a return on net operating assets (RNOA) of 61.07%.

a. Compute ROE.

Note:Round percentage to two decimal places (for example, enter 6.66% for 6.6555%).

Answer

%

b. Compute net nonoperating obligations (NNO) for 2018 and 2017, net nonoperating expense (NNE), and the NNE as a percentage of NNO (NNEP), assuming a 22% statutory tax rate.

Note:Round NNEP percentage to two decimal places (for example, enter 6.66% for 6.6555%).

2018 NNO: $Answer

million

2017 NNO: $Answer

million

2018 NNE: $Answer

million

2018 NNEP:Answer

%

c. Compute FLEV and Spread.

Note:For FLEV, round amount to four decimal places (for example, enter 6.7756 for 6.775555).

Note: Round Spread percentage to two decimal places (for example, enter 6.66% for 6.6555%).

2018 FLEV:Answer

2018: Spread:Answer

%

d. Show that ROE = RNOA + (FLEV Spread).

Note: For FLEV, round amount to four decimal places (for example, enter 6.7756 for 6.775555).

Note:For RNOA, Spread, and ROE, round percentages to two decimal places (for example, enter 6.66% for 6.6555%).

RNOA+ (FLEVxSpread=ROE

+ (

x

) =

e. What is the nonoperating return for the year?

Note:Round Spread percentage to two decimal places (for example, enter 6.66% for 6.6555%).

Answer

%