EX 8-26 Cash to monthly cash expenses ratio

During 2012, Pierport Inc. has monthly cash expenses of $400,000. On December 31, 2012, the cash balance is $3,600,000.

a. Compute the ratio of cash to monthly cash expenses.
b. Based on (a), what are the implications for Pierport Inc.?

Answer:
a. 9 months ($3,600,000/$400,000)

b. At the current rate of operations, Pierport has 9 months of cash remaining. Pierport should either restructure its operations or begin planning on raising additional financing in order to continue in business.

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