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 costs every time it transfers funds into and out of the money market.
The rate of interest in the money market is 9.465%. 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:
(i) The company's target cash balance.
(ii) The lower and upper cash limit.
(iii) Lynx Services Ltd.'s decision rules.