R Co has set a minimum cash account balance of $7,500. The cash spread is expected to be $13,500.

Determine the upper limit and the return point for the cash account of R Co using the Miller-Orr model and explain the relevance of these values for the cash management of the company.

The minimum cash balance of $20,000 is required at Miller-Orr Co, and transferring money to or from the bank costs $50 per transaction. Inspection of daily cash flows over the past year suggests that the standard deviation is $3,000 per day, and hence the variance (standard deviation squared) is $9 million. The interest rate is 0.03% per day.

Calculate:

(i) the spread between the upper and lower limits (A: $31,200) (ii) the upper limit (A: $51,200) (iii)the return point. (A: $30,400)