A firm requires Rs. 20 million in cash for meeting its transaction needs over the next four months, its planning horizon for liquidity decisions. It currently has the amount in the form of marketable securities that earn 12 percent annual yield. The cash payments will be made evenly over the planning period. The conversion of marketable securities into cash entails a fixed cost of Rs. 900 per transaction. What is the optimal conversion size as per Baumol model?

A firm requires Rs. 20 million in cash for meeting its transaction needs over the next four months, its planning horizon for liquidity decisions. It currently has the amount in the form of marketable securities that earn 12 percent annual yield. The cash payments will be made evenly over the planning period. The conversion of marketable securities into cash entails a fixed cost of Rs. 900 per transaction. What is the optimal conversion size as per Baumol model?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 9P

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