Answer:
a. We have:
Days' cash on hand for Amazon = 77 days
Days' cash on hand for Netflix = 180 days
b. The results show Amazon can keep up with its expenses for 77 days using the current cash reserves if it makes no sales, while Netflix can keep up with its expenses for 180 days using the current cash reserves if it makes no sales.
Explanation:
a. Determine the days' cash on hand for Amazon and Netflix.
Days' cash on hand = (Cash + Short term investment) / ((Operating expense - Depreciation expense) / 365) …………… (1)
Using equation (1), we have:
Days' cash on hand for Amazon = ($19,334 + $6,647) / (($131,801 - $8,116) / 365) = 77 days
Days' cash on hand for Netflix = ($1,468 + $266) / (($8,451 - $4,925) / 365) = 180 days
b. Interpret the results
The results show Amazon can keep up with its expenses for 77 days using the current cash reserves if it makes no sales.
However, the results show that Netflix can keep up with its expenses for 180 days using the current cash reserves if it makes no sales.
