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Watkins Resources faces a smooth annual demand for cash of $1.55 million, incurs transaction costs of $80 every time the firm sells marketable securities, and

Watkins Resources faces a smooth annual demand for cash of $1.55 million, incurs transaction costs of $80 every time the firm sells marketable securities, and can earn 4.2 percent on its marketable securities.

What will be its optimal cash replenishment level?

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