Chapter 7, Problem 7.4MAD

(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 Incorporation KK and Incorporation DB

(b)

To determine

To indicate: The company which has stronger liquidity position based on the values computed in Part (a)