PRS Corporation uses one of the cash conversion models to manage its cash account. Recently, someone asking how sensitive is the solution for the return point and upper limit to changes in the conversion cost, the variance of daily net cash flow and the daily opportunity cost rate. The values that are currently being used are $50 conversion cost, $2 million daily net cash flow variance and 10% annual opportunity cost. i) Compute the return point using current values and, the upper limit using current values ii) Simultaneously increase each of the three (3) variables values used by 50% and recalculate the return point and upper limit. iii) Discuss the sensitivity of the model to changes in the value of the input variables.
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PRS Corporation uses one of the cash conversion models to manage its cash account. Recently, someone asking how sensitive is the solution for the return point and upper limit to changes in the conversion cost, the variance of daily net
i) Compute the return point using current values and, the upper limit using current values
ii) Simultaneously increase each of the three (3) variables values used by 50% and recalculate the return point and upper limit.
iii) Discuss the sensitivity of the model to changes in the value of the input variables. |
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