Penco Supply spends £428,000 a week to pay bills and maintains a lower cash balance limit of £75,000. The standard deviation of its disbursements is £18,900. The applicable interest rate is 5 per cent and the fixed cost of transferring funds is £65. What is the firm's optimal initial cash balance based on the BAT model?

Penco Supply spends £428,000 a week to pay bills and maintains a lower cash balance limit of £75,000. The standard deviation of its disbursements is £18,900. The applicable interest rate is 5 per cent and the fixed cost of transferring funds is £65. What is the firm's optimal initial cash balance based on the BAT model?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter17: The Management Of Cash And Marketable Securities

Section: Chapter Questions

Problem 1P

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