The upper limit and the target cash balance under the Miller‑Orr model. Introduction: Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

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Chapter 19.A, Problem 7QP

Summary Introduction

To determine: The upper limit and the target cash balance under the Miller‑Orr model.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

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