Using Miller-Orr the variance of the daily cash flows for the Pele Bicycle Shop is $840,000. The

Question:

Using Miller-Orr the variance of the daily cash flows for the Pele Bicycle Shop is $840,000. The opportunity cost to the firm of holding cash is 7 percent per year. What should the target cash level and the upper limit be if the tolerable lower limit has been established as $150,000? The fixed cost of buying and selling securities is $500 per transaction.

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...