ANSWER:

Step 1: Calculate Net Income

Net income is the difference between total revenues and total expenses.

$$\text{Net Income} = 850 - 720 = 130$$

Step 2: Add Back Depreciation (a non-cash expense)

Depreciation is a non-cash expense, so we add it back to net income.

$$\text{Adjusted Net Income} = 130 + 40 = 170$$

Step 3: Adjust for Changes in Working Capital

We now adjust for changes in current assets and liabilities.

• Accounts Receivable increased from $50 to $60 (an increase in assets is a reduction in cash flow).

$$\text{Change in Accounts Receivable} = 60 - 50 = 10 \quad (\text{cash outflow})$$

• Accounts Payable increased from $22 to $28 (an increase in liabilities is an increase in cash flow).

$$\text{Change in Accounts Payable} = 28 - 22 = 6 \quad (\text{cash inflow})$$

Step 4: Calculate Net Cash Flows from Operating Activities

Now, we can calculate the net cash inflows by adjusting for the changes in working capital.

$$\text{Net Cash Inflows} = 170 - 10 + 6 = 166$$