4. Costs and the BAT Model Debit and Credit Bookkeepers needs a total of $21,000 low, it sells $1,500 in securities and transfers the cash in. The interest rate is 4 per b. What is the target cash balance derived using the BAT model? 32/33NS AND PROBLEMS 1. Changes in Target Cash Balances Indicate the likely impact of cach of the follow BASIC ing on a company's target cash balance. Use the letter I to denote an increase and D to denote a decrease. Briefly explain your reasoning in each case: Ouestions 1-10) a. Commissions charged by brokers decrease. b. Interest rates paid on money market securities risc. c. The compensating balance requirement of a bank is raised. d. The firm's credit rating improves. e. The cost of borrowing increases. 1. Direct fees for banking services are established. 2. Using the BAT Model Given the following information, calculate the target cash balance using the BAT model: Annual interest rate Fixed order cost Total cash needed 4.5% $25 $10.200 How do you interpret your answer? 3. Opportunity versus Trading Costs White Whale Corporation has an average daily cash balance of $1,700. Total cash needed for the year is $64.000. The interest rate is 5 percent, and replenishing the cash costs $8 each time. What are the oppor- tunity cost of holding cash, the trading cost, and the total cost? What do you think of White Whale's strategy? in cash during the year for transactions and other purposes. Whenever cash runs cent per year, and selling securities costs $25 per sale. 2. What is the opportunity cost under the current policy? The trading cost? With no additional calculations, would you say that Debit and Credit keeps too much or too little cash? Explain. X 3 DIS PART 7 Short-Term Financial Planning and Management 5. Determining Optimal Cash Balances The All Day Company is currently hold ing $690,000 in cash. It projects that over the next year its cash outflows will ex- ceed cash inflows by $140.000 per month. How much of the current cash holdings should be retained, and how much should be used to increase the company's hold- ings of marketable securities? Each time these securities are bought or sold through a broker, the company pays a fee of $250. The annual interest rate on money market securities is 3.2 percent. After the initial investment of excess cash, how many times during the next 12 months will securities be sold? 4. Costs and the BAT Model Debit and Credit Bookkeepers needs a total of $21,000 low, it sells $1,500 in securities and transfers the cash in. The interest rate is 4 per b. What is the target cash balance derived using the BAT model? 32/33NS AND PROBLEMS 1. Changes in Target Cash Balances Indicate the likely impact of cach of the follow BASIC ing on a company's target cash balance. Use the letter I to denote an increase and D to denote a decrease. Briefly explain your reasoning in each case: Ouestions 1-10) a. Commissions charged by brokers decrease. b. Interest rates paid on money market securities risc. c. The compensating balance requirement of a bank is raised. d. The firm's credit rating improves. e. The cost of borrowing increases. 1. Direct fees for banking services are established. 2. Using the BAT Model Given the following information, calculate the target cash balance using the BAT model: Annual interest rate Fixed order cost Total cash needed 4.5% $25 $10.200 How do you interpret your answer? 3. Opportunity versus Trading Costs White Whale Corporation has an average daily cash balance of $1,700. Total cash needed for the year is $64.000. The interest rate is 5 percent, and replenishing the cash costs $8 each time. What are the oppor- tunity cost of holding cash, the trading cost, and the total cost? What do you think of White Whale's strategy? in cash during the year for transactions and other purposes. Whenever cash runs cent per year, and selling securities costs $25 per sale. 2. What is the opportunity cost under the current policy? The trading cost? With no additional calculations, would you say that Debit and Credit keeps too much or too little cash? Explain. X 3 DIS PART 7 Short-Term Financial Planning and Management 5. Determining Optimal Cash Balances The All Day Company is currently hold ing $690,000 in cash. It projects that over the next year its cash outflows will ex- ceed cash inflows by $140.000 per month. How much of the current cash holdings should be retained, and how much should be used to increase the company's hold- ings of marketable securities? Each time these securities are bought or sold through a broker, the company pays a fee of $250. The annual interest rate on money market securities is 3.2 percent. After the initial investment of excess cash, how many times during the next 12 months will securities be sold