Question

The Blossom Company has disclosed the following financial information in its annual reports for the period ending March 31, 2017: sales of $1.452 million, cost of goods sold of $801,000, depreciation expenses of $175,000, and interest expenses of $89,575. Assume that the firm has an average tax rate of 35 percent. Compute the cash flows to investors from operating activity. (Round answer to 2 decimal places, e.g. 15.25.)

Answer 1

The cash flows to investors from operating activity can be computed using the formula: Operating Cash Flow = Net Income + Depreciation + Interest + Taxes.

Step-by-step explanation:

The cash flows to investors from operating activity can be computed using the formula:

Operating Cash Flow = Net Income + Depreciation + Interest + Taxes.

Let's calculate step by step:

Net Income = Sales - Cost of Goods Sold - Depreciation - Interest.

Therefore, Net Income = $1,452,000 - $801,000 - $175,000 - $89,575.

Next, we need to calculate Taxes. Given that the firm has an average tax rate of 35%, we can compute Taxes by multiplying Net Income by the tax rate.

Taxes = Net Income * Tax rate.

Finally, we can calculate the cash flows to investors from operating activity by summing up Net Income, Depreciation, Interest, and subtracting Taxes.

The formula is: Operating Cash Flow = Net Income + Depreciation + Interest - Taxes.