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Optimal Cash Transfer . Barenbaum Industries projects that cash outlays of $4.5 million will occur uniformly throughout the year. Barenbaum plans to meet its cash

Optimal Cash Transfer. Barenbaum Industries projects that cash outlays of $4.5 million will occur uniformly throughout the year. Barenbaum plans to meet its cash requirements by periodically selling marketable securities form its portfolio. The firms marketable securities are invested to earn 12%, and the cost per transaction of converting securities to cash is $27.

a. Use the Bauman model to determine the optimal transaction size for transfers from marketable securities to cash.

b. What will be Barenbaums average cash balance?

c. How many transfers per year will be required?

d. What will be Barenbaums total annual cost of maintaining cash balances?

e. What would the total cost be if the company maintained an average cash balance of $50,000 or of $0 (it deposits funds daily to meet cash requirements)?

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