The opportunity cost , the trading cost, and whether Company DC holds very little cash. Introduction: Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

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Answer 1

Question

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

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Answer 2

Question

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

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Answer 3

Question

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

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Answer 4

Question

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

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Answer 5

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

Answer 6

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

Answer 7

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

Answer 8

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

Answer 9

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 19.1 - What is the transaction motive, and how does it...Ch. 19.1 - What is the cost to the firm of holding excess...Ch. 19.2 - Which would a firm be most interested in reducing,...Ch. 19.2 - Prob. 19.2BCQ Ch. 19.2 - Prob. 19.2CCQ Ch. 19.3 - Prob. 19.3ACQ Ch. 19.3 - Prob. 19.3BCQ Ch. 19.4 - Prob. 19.4ACQ Ch. 19.4 - What is a zero-balance account? What is the...Ch. 19.5 - What are some reasons why firms find themselves...

Solution Summary: The author explains that Company DC's trading costs are higher than its opportunity cost, which indicates that the company is selling its securities more often to replenish cash.

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To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

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Chapter 19 Solutions