9 Miller-Orr cash model. The financial manager of NewPort Transport, a transport and freight company, has estimated the standard deviation of the company’s cash flows to be £500. The marketable securities conversion cost is estimated at £25 per transaction and the annual interest rate on short-term investments is 9 per cent. The company wishes to maintain a safety cash balance of £5,000.

You are required to calculate: (1) the target level cash balance, (2) the upper control limit, and (3) the average cash balance. Advise the financial manager of the implications of the model.