Problem 5: At week 0, the cash balance of Golden Sock is P1.2M and outflows exceed inflows by P600,000 every week. At the end of the 2nd week, this cash balance will become zero and thus the company needs to convert its marketable securities to cash. when securities are converted, Golden Sock will incur P1000 and it has to forgo returns of 10% from securities converted. Using Baumol model, Golden Sock would want to determine the optimum level of marketable securities to be converted into cash in order for it to support its cash requirements for the coming year (that is for 52 weeks). The P1.2M should be maintained at all times. a. what is the optimum level to which marketable securities are to be converted? b. how much is the total cost to be incurred at the optimum conversion point?
Problem 5: At week 0, the cash balance of Golden Sock is P1.2M and outflows exceed inflows by P600,000 every week. At the end of the 2nd week, this cash balance will become zero and thus the company needs to convert its marketable securities to cash. when securities are converted, Golden Sock will incur P1000 and it has to forgo returns of 10% from securities converted. Using Baumol model, Golden Sock would want to determine the optimum level of marketable securities to be converted into cash in order for it to support its cash requirements for the coming year (that is for 52 weeks). The P1.2M should be maintained at all times. a. what is the optimum level to which marketable securities are to be converted? b. how much is the total cost to be incurred at the optimum conversion point?
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Problem 5: At week 0, the cash balance of Golden Sock is P1.2M and outflows exceed inflows by
P600,000 every week. At the end of the 2nd week, this cash balance will become zero and thus the
company needs to convert its marketable securities to cash. when securities are converted, Golden Sock
will incur P1000 and it has to forgo returns of 10% from securities converted. Using Baumol model,
Golden Sock would want to determine the optimum level of marketable securities to be converted into
cash in order for it to support its cash requirements for the coming year (that is for 52 weeks). The P1.2M
should be maintained at all times.
a. what is the optimum level to which marketable securities are to be converted?
b. how much is the total cost to be incurred at the optimum conversion point?
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