Question
Your firms management of its cash position is based on the Miller-Orr model. The weekely standard deviation of the disbursements is $8,600. The applicable weekly
Your firms management of its cash position is based on the Miller-Orr model. The weekely standard deviation of the disbursements is $8,600. The applicable weekly interest rate is 0.054 percent and the fixed cost of transferring funds is $65. Suppose your firms target cash balance, C* = 68,830. (i) What lower cash balance limit (L) is consistent with this information. (ii) Find U*, the firms implied maximum cash balance limit. (iii) Find your firms average cash balance held over time. (iv)Using your answer to part (iii), find the average dollar cost incurred by the firm from holding cash over a two-week period.
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