Question

Following are financial statement numbers and ratios for CVS Health Corporation for the year ended December 31, 2016. 2016 Total revenue (in millions) $177,526 Net operating profit margin (NOPM) 3.6% Net operating asset turnover (NOAT) 2.91 If we anticipate a 5% sales growth in 2017, what is the company’s projected net operating profit after tax (NOPAT) for 2017? Select one: A. $61,533 million B. $ 6,710 million C. $ 6,391 million D. $64,499 million E. None of the above

Answer 1

The correct option is B,$6,710 million

Step-by-step explanation:

First and foremost,one needs to be aware that net operating profit margin(NOPM) of 3.6% was computed by dividing operating profit after tax by the total revenue for 2016,hence we use same formula to determine the net operating profit after tax for 2017 by merely changing the subject of the formula.

NOPM=net operating profit after/total revenue

net operating profit after tax=NOPM*total revenue

NOPM remains at 3.6%

total revenue for 2017=total revenue for 2016*(1+growth rate)

total revenue for 2016 is $177,526 million

growth rate is 5%

total revenue for 2017= $177,526*(1+5%)=$ 186,402.30 million

Net operating profit after tax= 186,402.30 *3.6%=$ 6,710.48 million

Approximately $6710 million