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5) A FIRM USES THE STONE MODEL. THE FIRM MAKES THE FOLLOWING ASSUMPTIONS AND DATA FROM THE MILLER-ORR MODEL: Miller-Orr control limits are $20,000 (LCL)
5) A FIRM USES THE STONE MODEL. THE FIRM MAKES THE FOLLOWING ASSUMPTIONS AND DATA FROM THE MILLER-ORR MODEL: Miller-Orr control limits are $20,000 (LCL) and $110,000 (UCL). The company uses a 7-day look-ahead period and a k of 3 days. The return point is $50,000, and the present cash balance is $45,000. A 5% forecasting error is associated with the following projected daily net cash flows: Day Cash Flow Forecast 0 1 $70,000 ($50,000) 2 3 ($25,000) 4 5 $5,000 ($10,000) $25,000 6 7 $45,000 A. Complete the following chart - Day O is calculated for you: current cash balance +3 days of cash flows, so $45,000 + $70,000 - $50,000 - $25,000 = $40,000. CASH BALANCE CASH FLOW FORECAST DAY CASH BALANCE IN 3 DAYS 0 $45,000 $40.000 1 $70,000 $115,000 2 3 4 5 6 7 B. Establish the Stone Control limits. C. What transactions should the cash manager plan to make during the next 2 days, if any
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