Chapter 7, Problem 7.3MAD

(a)

To determine

Days’ cash on hand: This is a financial metric which measures number of days a company would pay its cash operating expenses, if revenue declines. Days’ cash on hand of 50 days or greater is considered to be ideal.

Formula to compute days’ cash on hand:

$\text{Days’ cash on hand = }\frac{\text{Cash and short-term investments}}{\text{Daily cash operating expenses}}$

To compute: Days’ cash on hand for Corporation A for the Years 1, 2, and 3

(b)

To determine

To interpret: The values computed in Part (a)

(c)

To determine

To mention: Some ways for a liquidity squeeze