Company has experienced a stochastic demand for its product, which results in fluctuating cash balances randomly. Determine the optimal cash balance, and average cash balance. check the attached photo for addi

Company has experienced a stochastic demand for its product, which results in fluctuating cash balances randomly. Determine the optimal cash balance, and average cash balance. check the attached photo for addi

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

Fena Company has experienced a stochastic demand for its product, which results in fluctuating cash balances randomly.

Determine

the optimal cash balance, and
average cash balance.

check the attached photo for additional info

Fixed cost of a securities transaction
P100
Variance of daily net cash flows
P1,000
Daily interest rate on securities (6%/360)
0.000167

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Similar questions

The term Cash Management refers to the day-to-day administration of managing cash inflows and outflows. Because of the multitude of cash transactions on a daily basis, they must be managed. The ultimate goal of cash management is to maximize liquidity and minimize the cost of funds and it is extremely crucial for any organization as mismanagement can lead to financial distress. This impacts future growth for the company. Maintaining cash balances while earning a return on idle cash are also top concerns.Cash management allows estimating the cash profits and not just profits from outstanding incomes and credit sales. It helps in detecting cash embezzlement. It allows in speeding up the working capital cycle. It helps in rewarding such debtors that make quicker payments.Discuss in detail the services generally offered by banks under the Cash management services arrangement.
The company may need to borrow money if : a. total cash available is more than the cash needed for expenditure in the budget period . b. the cash needed for expenditure in the budget period trails behind the total cash available . c. the cash needed to pay for expenditures is less than the total of the opening cash balance plus the cash receipts in the budget period d. there is a cash deficiency in the budget period . e . None of the given answers .
the cash method of accounting is generally selected by the very small firm that wants to help its cash flow by avoiding the payment of taxes on income not yet received
The percentage of accounts receivable that is uncollectible can be ignored for cashbudgeting becausea. no cash is received from an account that defaults.b. it is included in cash sales.c. it appears on the budgeted income statement.d. for most companies, it is not a material amount.e. None of these.
Please help me. Thankyou.
I know in order to find the cash flow from operating activities using the indirect method you start with the net income then add your depreciation expense and your loss on disposal equipment. Then you subtract increases in account receivable and decrease in account receivable and that gives you your net income. However, when I compute this it says all my answers are incorrect. I thought I was doing this correctly but clearly I need assistance.
Which of the following is false? a. Baumol model helps firm to find out their desirable level of cash balance under certainty b. Any presence of a cash buffer affects the cost of holding cash and ultimately the annual cost of cash for a particular firm c. A higher average daily disbursement float than average daily collection float is more desirable for a firm d. Accounts payable increase the number of days a firm’s resources are tied up in the operating cycle
The balance of the cash is declining because Accounts Receivable is increasing due to collection rate. What can you suggest on this one ?
The cash conversion cycle is best described as: a. the process of selling the product b. the process of converting the product into cash and then cash into more product c. the process of collecting cash for sales d. the process of investing cash into new product inputs
The operating cycle for a merchandiser that only has cash sales moves from:
Explain why cash management is critical for young, fast growing companies and describe how a company could seek to cover any cash shortfalls in the future.

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