A Salt & Battery limited maintains a minimum cash balance of KShs. 2,000,000. The standard deviation of its daily net cash flows is estimated at KShs. 22,000. The transaction cost of buying and selling marketable securities is KShs. 60 per transaction. The rate of interest for marketable securities is 5% per annum.
Assume 365 days in a year.
Required
Using miller- Orr model determine:
1 Spread.(4marks).
2 The upper limit.(2 Marks)
3 The return point. (3 Marks)


b. "The working capital policy of any business entity must address the twin issues of the level of current assets and the manner in which these current assets are financed." Required: In relation to the above statement, explain how
business entities can adopt aggressive, moderate and conservative working capital policies. (6 Marks)