Question

The Oakland Mills Company has disclosed the following financial information in its annual reports for the period ending March 31, 2013: sales of $1,430,000, costs of goods sold of $816,000, depreciation expenses of $175,000, and interest expenses of $89,575. Assume that the firm has a tax rate of 35 percent. Compute the cash flows to investors from operating activity. (Round answer to 2 decimal places, e.g. 15.25.) Cash flow from operating activity $

Answer 1

The cash flows to investors from operating activity is $402,126.25

Step-by-step explanation:

For computing the cash flow from operating activity, first, we have to compute the net income which is shown below:

= Sales - cost of goods sold - depreciation expense - interest expense - income tax expense

where,

The income tax expense equals to

= (Sales - cost of goods sold - depreciation expense - interest expense) × income tax rate

= $1,430,000 - $816,000 - $175,000 - $89,575) × 35%

= $122,298.75

The other items values would remain the same

Now put these values to the above formula

So, the value would equal to

= $1,430,000 - $816,000 - $175,000 - $89,575 - $122,298.75

= $227,126.25

Now the cash flow from operating activity equals to

= Net income + depreciation expense

= $227,126.25 + $175,000

= $402,126.25