marketable securities. Compute their optimal cash balance target (C*), optimal upper bound (U*) and lower bound (L), as well as the average cash balance (ACB) that they will have on hand so that you can also tell them their annual opportunity cost of maintaining the average cash balance.
marketable securities. Compute their optimal cash balance target (C*), optimal upper bound (U*) and lower bound (L), as well as the average cash balance (ACB) that they will have on hand so that you can also tell them their annual opportunity cost of maintaining the average cash balance.
Chapter17: The Management Of Cash And Marketable Securities
Section: Chapter Questions
Problem 2P
Related questions
Question
![Furles Inc. has hired you as a consultant to
analyze their cash management policy and
suggest the most efficient parameters. They
have estimated their current daily variance of
net cash flow to be $75,00O. Their bank
requires them to maintain a minimum
compensating balance in their account of
$2,000. They have negotiated a fixed
transaction cost with their broker of $15 per
transaction and they are currently able to earn
an annual return of 5% on their investment in
marketable securities. Compute their optimal
cash balance target (C*), optimal upper
bound (U*) and lower bound (L), as well as
the average cash balance (ACB) that they will
have on hand so that you can also tell them
their annual opportunity cost of maintaining
the average cash balance.
C* =
U* =
L =
ACB =
Annual Opportunity Cost ($) =
%3D](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa74e6e98-6743-4555-8d5c-791f8913b151%2Ffdfcf67e-83e9-44d7-8958-c19876a39e41%2F60svxs_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Furles Inc. has hired you as a consultant to
analyze their cash management policy and
suggest the most efficient parameters. They
have estimated their current daily variance of
net cash flow to be $75,00O. Their bank
requires them to maintain a minimum
compensating balance in their account of
$2,000. They have negotiated a fixed
transaction cost with their broker of $15 per
transaction and they are currently able to earn
an annual return of 5% on their investment in
marketable securities. Compute their optimal
cash balance target (C*), optimal upper
bound (U*) and lower bound (L), as well as
the average cash balance (ACB) that they will
have on hand so that you can also tell them
their annual opportunity cost of maintaining
the average cash balance.
C* =
U* =
L =
ACB =
Annual Opportunity Cost ($) =
%3D
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