Question
Optimal Cash Transfer. Barenbaum Industries projects that cash outlays of $5.4 million will occur uniformly throughout the year. Barenbaum plans to meet its cash requirements
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Optimal Cash Transfer. Barenbaum Industries projects that cash outlays of $5.4 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 6%, and the cost per transaction of converting securities to cash is $15. (5 pts)
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Use the Baumol model to determine the optimal transaction size for transfers from marketable securities to cash.
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What will be Barenbaums average cash balance?
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How many transfers per year will be required?
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What will be Barenbaums total annual cost of maintaining cash balances?
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What would the total cost be if the company maintained an average cash balance of $40,000 or of $0 (it deposits funds daily to meet cash requirements, using 360 days)?
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The Economics Of Money Banking And Financial Markets
Authors: Frederic S. Mishkin
12th Global Edition
1292268859, 978-1292268859
