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. Computer the cash flows to investors from operating activity. (Round answer to 2 decimal places, e.g. 15.25.)
To compute the cash flows to investors from operating activities, we need to start with net income and make adjustments for non-cash expenses and working capital changes.
1. Start with net income:
Net Income = Sales - Cost of Goods Sold - Depreciation Expenses - Interest Expenses - Taxes
Net Income = $1,452,000 - $801,000 - $175,000 - $89,575 - (0.35 * Net Income) (assuming a 35% tax rate)
2. Solve for Net Income:
Net Income = $1,452,000 - $801,000 - $175,000 - $89,575 - (0.35 * Net Income)
Simplifying the equation, we get:
1.35 * Net Income = $1,452,000 - $801,000 - $175,000 - $89,575
1.35 * Net Income = $386,425
Dividing both sides by 1.35, we get:
Net Income = $386,425 / 1.35
Net Income = $286,280.37
3. Next, adjust for non-cash expenses:
Add back Depreciation Expenses:
Cash Flows from Operations = Net Income + Depreciation Expenses
Cash Flows from Operations = $286,280.37 + $175,000
4. Finally, calculate the cash flows to investors from operating activities:
Cash Flows from Operations = $461,280.37
Therefore, the cash flows to investors from operating activities for The Blossom Company is $461,280.37.