• Assuming an annual opportunity cost of 2.5%, a fixed cost per securities transaction of $10, and total annual cash needs for the year of $200,000. Assume that your firm wants to use the Miller-Orr model to optimize its cash holdings and has decided that its Lower Control Limit is $2,500.
  • Determine the firms optimal cash position.
  • Determine the firms Upper Control Limit.
  • Describe what should happen (including amounts $s) if the firm reaches the Upper Control Limit.
  • Describe what should happen (including amounts $s) if the firm reaches the Lower Control Limit.