1. Baumol: Suppose a firm needs $1,000,000 this year to pay its expenses. If each transaction moving cash to Money Market Securities has a $200 cost and the interest rate is 3%, what is the optimal transaction size?
2. Miller-Orr: Suppose a firms cash flow variance is $50,000, and the annual interest rate is 2.5% If each transaction costs $200 and the safety stock is $100,000 what is the optimal transaction size and the average cash balance?
3. Economic Order Quantity: If a firm sells 200,000 units this year and each unit in inventory has a $100 carrying charge, what is the optimal order size if placing and receiving each order costs $150?
4. Cost of Payables: Suppose your supplier has 3/15 net 30 credit terms. What is the annualized cost to YOU of not taking the discount???
5. Yield on Discounted Paper: Suppose a one year Money Market instrument is sold for 97% of par. What is the yield to the investor who buys this and holds to maturity?