Case 1 The statement of cash flows for Yahoo! are as follows:

Yahoo! Inc. Consolidated Statements of cash flow Year ended December 31, ($ thousand) Year 8 ($) Year 7 ($) Year 6 ($)

Cash flow from operating activities

Net income(loss) 25,588 (25,520) 6,472

Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation and amortization 10,215 2,737 639 Tax benefit from stock options 17,827 - - Non-cash charges related to stock option grants and warrant issuances 926 1,676 197 Minority interest in operation of consolidated subsidiaries (68) (727) (540) Purchased in process research and development 17,300 - - Other on cash charge - 21,245 - Changes in assets and liabilities Account receivables, net (13,616) 5,963 4,269 Prepaid expenses 2,144 (6,110) (386) Account payable 515 2,425 1,386 Accrued expenses and other current liabilities 16,688 7,404 4,393 deferred revenue 33,210 2,983 1,665 Due to related parties (451) 330 948 Net cash provided by (used in) operating system 110,278 480 (2,394) Cash flow from investing activities Acquisition of property and equipment (11,911) (6,722) (3,442) cash acquired in acquisitions 199 - - Purchase of marketable securities (471,135) (58,753) (115,247) Proceeds from sales and maturities of marketable securities 158,350 86,678 43,240 Others investment (5,445) (1,649) (729) Net cash provided by (used in) investing activities (329,942) 19,554 (76,178) Cash flow from financing activities Proceeds from issuance of common stock, net 280,679 7,516 42,484 Proceeds from issuance of convertible preferred stock - - 63,750 Proceeds from minority investors 600 999 1,050 Other - 1,106 128 Net cash provided by financing activities 281,279 9,621 107,156 Effect of exchange rate changes on cash and cash equivalent 288 (380) (63) Net change in cash and cash equivalents 61,903 29,275 28,521 cash and cash equivalents at beginning of year 63,571 34,296 5,775 cash and cash equivalents at end of year 125,474 63,571 34,296

You are required: a. Yahoo!'s operations did not produce significant cash flows during Year 6 and Year 7. How does Yahoo! finance its growth in the absence of sufficient operating cash flows? b. What appears to drive the operating cash flows of Yahoo! c. Yahoo! Engages in purchases and sales of marketable securities. Why do you believe Yahoo! pursue this activity? d. Yahoo! reports $33.21 million of deferred revenue. Based on your understanding of Yahoo!'s operation, what do you believe this amount represents