BIG TWO CORPORATION

Statement of Cash Flows

For the year Ended December 31, 2010

(In Millions)

Cash Flows from Operating Activities:

Net Income 117.5

Sources of Cash

Depreciation 100.0

Accounts Payable 40.0

Uses of Cash

Accounts Receivable (60.0)

Inventories (200.0)

Net cash provided by operating activities (2.5)

Cash Flows from Investing Activities:

Cash Used for Fixed Assets (230.0)

Cash Flow from Financing Activities:

Notes Payable 50.0

Bonds Payable 174.0

Common and Preferred Dividends (61.5)

Net Cash Provided by Financing Activities 162.5

Net decrease in cash and marketable securities (70.0)

Cash and securities at beginning of the year 80.0

Cash and securities at end of the year 10.0

Required:

a. What were the two (2) main sources of cash inflow in the operating (water distribution) activities of Big Two Corporation and how was it utilized?

b. Does the sizeable increase in inventories indicate that the company is gearing up for a market share expansion or is it simply having a hard time selling its goods?

c. What were the likely cash source of Big Two Corporations fixed asset acquisition? Is there an indication that there was a proper matching of borrowing maturities and asset life?

d. Based on your assessment of the companys cash flow statement, was the firm aggressive in financing its working capital requirements?

e. Based on the limited data in the cash flow statement, is Big Two Corporation highly leveraged? Please explain briefly.