You recently graduated from X and have just been hired by an investment banking firm to track the performance of publicly listed companies. Your first assignment is to analyze and forecast Netflix’s 2018 operating income.

Condensed data in thousands of dollars (000’s) from Netflix’s 2016 and 2017 income statements are below:

In thousands	2017	2016
Revenue	$11,692,713	$8,830,669
Total cost of revenues and operating expenses	(10,854,034)	(8,450,876)
Operating income	$838,679	$379,793

1. Develop a cost-estimation equation for Netflix’s annual cost of revenues and operating expenses (Hint: Use the High-Low Method)
2. Predict operating profit for 2018, assuming 2018 sales of $15,794,341
3. Using www.sec.gov, look up Netflix’s 2018 Operating income reported in the 10K.Is the cost-estimation equation created in a) a useful framework for predicting Netflix’s operating income?