Paradise Retailers, Inc. (PRI) determined that $1,500,000 is needed for cash transactions made during the next year.  Each time PRI deposits money in its checking account, a charge of $12.95 is assessed to cover clerical costs.  If PRI can hold marketable securities that yield 4.5%, and then convert these securities to cash at a cost of only the $12.95 deposit charge, what is the optimal cash amount C* to transfer from marketable securities to the checking account according to the Baumol Model?

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Conversion Cycle

Conversion cycle is also known as cash cycle or net operating cycle. Conversion cycle refers to how much time a company takes to turn its investments which is done from stock or any other financial resources into cash flows from sales.