A company has set a safety cash balance of $6 000. The standard deviation of the daily cash balance during the last year was $600 and the transaction cost was $8. The company also has an opportunity to invest idle cash in marketable securities at an annual interest rate of 12%. Assume a 360-day year. Determine: i. IL ii. N. The daily opportunity cost (interest rate) and the variance of daily cash flow. The targeted cash balance (the return point) for the firm The value of short-term securities to be purchased or sold once the upperor lower limit is reached What are the strengths of the approach to cash management in comparison to the Baumol model?
A company has set a safety cash balance of $6 000. The standard deviation of the daily cash balance during the last year was $600 and the transaction cost was $8. The company also has an opportunity to invest idle cash in marketable securities at an annual interest rate of 12%. Assume a 360-day year. Determine: i. IL ii. N. The daily opportunity cost (interest rate) and the variance of daily cash flow. The targeted cash balance (the return point) for the firm The value of short-term securities to be purchased or sold once the upperor lower limit is reached What are the strengths of the approach to cash management in comparison to the Baumol model?
Chapter14: Capital Structure Management In Practice
Section: Chapter Questions
Problem 29P
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