Answer the questions below
Multi-Link, a trading company, currently has negligible cash holdings but expects to make a series of cash payments totaling Sh.150 million over the forthcoming year. These payments will become due at a steady rate. Two alternative ways have been suggested of meeting these obligations. Alternative I The company can make periodic sales from existing holdings of short-term securities. The average percentage rate of return on these securities is 12 over the forthcoming year. Whenever Multi-Link Ltd sells the securities. It will incur a transaction fee of Sh.15,000. The proceeds from the sale of the securities are placed on short- term deposit at 7% per annum interest until needed. Alternative II The company can arrange for a secured loan amounting to Sh.150 million for one year at an interest rate of 18% per annum based on the initial balance of the loan. The lender also imposes a flat arrangement fee of Sh.50,000 which would be met out of existing balances. The sum borrowed could be placed in a notice deposit at 9% per annum and drawn down at no cost as and when required. Multi-Link Ltd.'s treasurer believes that cash balances will be run down at an even rate throughout the year. Required Explain the weaknesses of the Baumol model in the management of cash. Advise Multi-Link Ltd. as to the better alternative for managing its cash. b) Lynx Services Ltd., a debt collection agency, has estimated that the standard deviation of its daily net cash flow is Sh.22,750. The company pays Sh.120 in transaction cost every time it transfers funds into and out of the money market. The rate of interest in the money market is 9.46%. The company uses the Miller-Orr Model to set its target cash balance. The minimum cash balance has been set at Sh.87,500. Required The company's target cash balance. The lower and upper cash limit Lynx Services Ltd.'s decision rules.Highlight four advantages and disadvantages to a company of being listed on a stock exchange. b) In relation to the stock exchange: Explain the role of the following members: floor brokers market makers underwriters Explain the meaning of the following terms: bull and bear markets bid-ask spread short selling