Homework Answers
Answer-
Concept-
The burn rate is used by startup companies and investors to track the amount of monthly cash that a company spends before it starts generating its own income. A company's burn rate is also used as a measuring stick for its runway, the amount of time the company has before it runs out of money.
So, if a company has $1 million in the bank, and it spends $100,000 a month, its burn rate would be $100,000 and its runway would be 10 months, derived as:
- ($1,000,000) / ($100,000) = 10
There are two types of burn rates: net burn and gross burn. A company's gross burn is the total amount of operating costs it incurs in expenses each month. A company's net burn is the total amount of money a company loses each month.
Calculation of Expected Monthly Cash Burn Rate as :
Projected Gross Expense
A) COGS - $ 100000
B) Operating Expense - $ 75000
C) Depreciation - $ 4000
D) Interest Expense- $ 1000
Monthly Gross cash burn - $ 180000
Calculation of Expected Monthly Net Cash burn as
Gross Revenue - $ 200000
less - Gross cash burn - $ 180000
Monthly Net Cash burn - $ 20,000
Formula for computation of Period by which ,he can maintain the cash burn rate without additional financing.
= Revenue / Net cash burn
= 200000/ 20000
= 5 times
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