The assistant treasurer of Monroe Tires, Inc., is trying to determine what the appropriate ash return level should be. The company's cash balances have been fluctuating wildly because of unpredictable and wide-ranging receipts and disbursements. The best estimate of annual disbursements is $5,000,000. The investment broker charges $75 per securities transaction. Short-term investment interest rates are 12%. The company does not mind a $0 cash balance but does not want the balance to be negative. Monroe's assistant treasurer estimates the variance of daily net cash flows to be $5,000,000 with using a LCL of $0.

a.) What should the cash return level be, using the Miller-Orr model?

b.) What is your estimate of the average cash balance if the Miller-Orr calculation is used to set the cash return level?

c.) How do you explain your finding in par A to the assistant treasurer, who want to know how to use the information provided by the model?

d.) If the variance of daily net cash flows is $10,000,000 instead of $5,000,000, how does this change the answer determined in part A? Is the cash return level double your earlier result? How do you interpret this?