Answered: Pinocchio Inc. has a total annual cash…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter23: Other Topics In Working Capital Management

Section: Chapter Questions

Problem 2P: Optimal Cash Transfer Barenbaum Industries projects that cash outlays of 4.5 million will occur...

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CASE 3

Pinocchio Inc. has a total annual cash requirement of P9,075,000 which are to be paid uniformly. Simile has the opportunity to invest the money at 24% per annum. The company spends, on the average, P40 for every cash conversion to marketable securities.

Required: Please solve 4-7

4. How much is the total holding cost?

5. How much is the total transaction cost?

6. How much is the total cost of cash?

7. What will be your advice to the management?

CASE 3
Pinocchio Inc. has a total annual cash requirement of P9,075,000 which are to be paid uniformly. Simile has the opportunity to invest the money at 24%
per annum. The company spends, on the average, P40 for every cash conversion to marketable securities.
Required:
1. Compute for the optimal cash conversion size.
2. Determine the average cash balance.
3. Determine the number of transactions.
4. How much is the total holding cost?
5. How much is the total transaction cost?
6. How much is the total cost of cash?
7. What will be your advice to the management?

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