Two Companies, XYZ LTD and ABC LTD are using two different cash management models in their quest to ensure that they apply cash efficiently in order to reduce costs associated with cash management in business:

XYZ LTD

The firms requires K100, 000 per month. Cash usage is constant throughout the year due to the fixed number of activities and the nature of the firms operations. The firm does not have any minimum cash balances. The fixed cost of raising cash is K1, 500 while the interest lost on the funds transferred is 16% p.a.

ABC LTD

Has both the Kwacha account and the dollar account to carter for its dollar transactions. On the dollar account, ABC LTD has set a minimum cash account balance of $5,000.The average cost to the company of making deposits or selling dollar investments is $15 per transaction and the standard deviation of its dollar cash flows is $ 1,200 per day (i.e. variance $1,440,000 per day).The average interest rate on dollar investments is 0.02%.

Required:

1. Determine the amount of cash XYZ LTD has to raise each time and the annual average cost of cash management if they apply the Baumol Model
2. Determine the spread, the upper limit ,and the return if ABC LTD applied the Mirror Orr Model in cash Management.
3. Briefly, explain the two important objectives of working capital management.
4. Explain how factoring, Cash Discounts and invoice discounting are used in Cash management.