The cash flow pattern in the firm is approximated by the Baumol (BAT) model. Now, the firm has $6,000,000 holdings in cash and zero marketable securities. Over next year, the total amount of new cash needed for transaction purpose is expected to be $4,000,000. The firm has to pay transaction cost $500 each time when it buys or sells securities. The annual interest rate on money market securities is 5%. i. What is the target cash balance? (3 marks) ii. How much of the current cash holding should be used to increase the firm's holdings of marketable securities? (3 marks) iii. After the investment of excess cash at part (ii), how many times will marketable securities be sold to

c) The cash flow pattern in the firm is approximated by the Baumol (BAT) model. Now, the firm has $6,000,000 holdings in cash and zero marketable securities. Over next year, the total amount of new cash needed for transaction purpose is expected to be $4,000,000. The firm has to pay transaction cost $500 each time when it buys or sells securities. The annual interest rate on money market securities is 5%. i. What is the target cash balance? (3 marks) ii. How much of the current cash holding should be used to increase the firm's holdings of marketable securities? (3 marks) iii. After the investment of excess cash at part (ii), how many times will marketable securities be sold to replenish cash during the next 12 months? (4 marks)