Pinocchio Inc. has a total annual cash requirement of P9,075,000 which are to be paid uniformly. Simile has the opportunity to invest the money at 24% per annum. The company spends, on the average, P40 for every cash conversion to marketable securities. Required: 1. Compute for the optimal cash conversion size. 2. Determine the average cash balance. 3. Determine the number of transactions.

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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CASE 3
Pinocchio Inc. has a total annual cash requirement of P9,075,000 which are to be paid uniformly. Simile has the opportunity to invest the money at 24%
per annum. The company spends, on the average, P40 for every cash conversion to marketable securities.
Required:
1. Compute for the optimal cash conversion size.
2. Determine the average cash balance.
3. Determine the number of transactions.
4. How much is the total holding cost?
5. How much is the total transaction cost?
6. How much is the total cost of cash?
7. What will be your advice to the management?
Transcribed Image Text:CASE 3 Pinocchio Inc. has a total annual cash requirement of P9,075,000 which are to be paid uniformly. Simile has the opportunity to invest the money at 24% per annum. The company spends, on the average, P40 for every cash conversion to marketable securities. Required: 1. Compute for the optimal cash conversion size. 2. Determine the average cash balance. 3. Determine the number of transactions. 4. How much is the total holding cost? 5. How much is the total transaction cost? 6. How much is the total cost of cash? 7. What will be your advice to the management?
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