Review the chapter's opening story involving Amazon.com and its founder, Jeff Bezos.

Required:

a. In a business such as Amazon.com, monitoring cash flow is always a priority. Even though Amazon now has billions in annual sales and sometimes earn a positive net income, explain how cash flow can lag behind net income.

b. Amazon is a publicly-traded corporation. What are potential sources of financing for its future expansion?

c. Explain how even in periods of net loss for Amazon, it still manages to show positive cash flow. (Hint: Think about sources of cash.)

2. Katie Murphy is preparing to meet with her banker. Her business if finishing its fourth year of operations. In the first year, it had negative cash flows from operations. In the second and third years, cash flows from operations were positive. However, inventory costs rose significantly in year 4 and cash flows from operations will probably be down by 25%. Murphy wants to secure a line of credit as a financing buffer. From experience, she knows the bank will scrutinize operating cash flows from year 1 to 4 and will want a projection for year 5. Murphy wants to show a steady rise in operating cash flows. She decides to use here discretion as owner and considers several business actions that will turn her operating cash flows from a decrease to an increase.

a. Identify two business actions Murphy might take to improve cash flows from operations.

b. Comment on the ethics and possible consequences of Murphy's decision to pursue these actions.