Refer to the following financial statements for Crosby Corporation:

a) Prepare a statement of cash flows for the Crosby Corporation using the general procedures indicated in Table 2-10.

b) Describe the general relationship between net income and net cash flows from operating activities for the firm.

c) Has the buildup in plant and equipment been financed in a satisfactory manner? Briefly discuss.

d) Compute the book value per common share for both 20X1 and 20X2 for the Crosby Corporation.

e) If the market value of a share of common stock is 3.3 times book value for 20X1, what is the firm's P/E ratio for 20X2?

CROSBY CORPORATION

Income Statement

For the Year Ended December 31, 20X2

Sales$2,200,000

Cost of goods sold 1,300,000

Gross profits900,000

Selling and administrative expense420,000

Depreciation expense 150,000

Operating income330,000

Interest expense 90,000

Earnings before taxes240,000

Taxes 80,000

Earnings after taxes160,000

Preferred stock dividends 10,000

Earnings available to common stockholders$ 150,000

Shares outstanding120,000

Earnings per share$ 1.25

Statement of Retained Earnings

For the Year Ended December 31, 20X2

Retained earnings, balance, January 1, 20X2$500,000

Add: Earnings available to common stockholders, 20X2150,000

Deduct: Cash dividends declared and paid in 20X250,000

Retained earnings, balance, December 31, 20X2$600,000

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Comparative Balance Sheets For 20Xl and 20X2 Year-End Year-End Assets 20X1 20X2 Current assets Cash S 70,000 S100.000 300,000 350.000 410.000 430,000 30,000 830.000 910,000 70,000 2,000,000 2,400,000 1000,000 1.150,000 .000.000 1.250,000 Accounts receivable (net) Inventory Prepaid expenses 50,000 Total current assets Investments (long-term securities) Plant and equipment 80,000 Less: Accumulated depreciation Net plant and equipment Total assets 910,000 $.230.000 Liabilities and Stockholders' Equity Current liabilities Accounts payable Notes payable Accrued expenses S 250,000 S440,000 400.000 400,000 50,000 720,000 890,000 70,000 Total current liabilities Long-term liabilities Bonds payable, 20X2 70.000 120.000 790.000 1,010,000 Total liabilities Stockholders' equity: Preferred stock, S100 par value Common stock, S1 par value Capital paid in excess of par Retained earnings 90.000 120,000 120,000 410.000 410,000 500,000 600,000 1.120,000 1220,000 $1.910.000 S2 230000 90.000 Total stockholders' equity Total liabilities and stockholders' equity