The Asian Tigers Conglomerate is seeking appropriate ways to manage its cash balances. The firm has established a lower limit with regard to its cash balance holdings of $40,000. It faces quite a bit of volatility in its daily cash flows, with a variance of $300,000. The annual interest rate on marketable securities is 6%. The flxed cost per transaction of buying and selling securities is $50.
a. Calculate the target cash balance and the upper limit to holding cash for the flrm.
b. Which cash balance model did you use for your computation?