Question

The following data is given for DGR Company: Net cash flows from operating activities $6,000,000 Cash...

The following data is given for DGR Company:

Net cash flows from operating activities $6,000,000
Cash and cash equivalents at end of year $2,700,000


DGR Company's ratio of cash to monthly cash expenses is:

a.5.4 months.

b.4.5 months.

c.8.1 months.

d.3.2 months.

Business   Accounting   
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Homework Answers

Answer #1

Correct answer---5.4 months

Please leave a comment below in case of any query

For calculating Cash to monthly cash flows we need to find out cash flow from operations in a month. Cash flow from operations in a month are given below

Monthly cash expense= Cash flow from operations/12

Monthly cash expense= $ 6,000,000/12

Monthly cash expense= $ 500,000

Now we can find cash to cash expense ratio

Cash to Cash expense ratio

Numerator

Ending cash balance

=

$ 2,700,000.00

=

5.4

Months

Denominator

Monthly cash expense

$      500,000.00

Ratio of 5.4 implies this company can survive without cash flows for 5.4 month by using its cash balance.
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