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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aper Submarine Manufacturing is investigating a lockbox system to reduce its ollection time. It has determined the following: Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Daily interest rate on money market securities The total collection time will be reduced by three days if the lockbox system is adopted. a. What is the PV of adopting the system? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32.) b. What is the NPV of adopting the system? (Do not round intermediate calculations 435 $845 $15 068% and round your answer to the nearest whole number, e.g., 32.) c. What is the net cash flow per day from adopting? Per check? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) a. PV b. NPV c. Net cash flow c.Net cash flow per day per check

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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.

Expert Solution & Answer

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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.

Expert Solution & Answer

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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.

Expert Solution & Answer

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Check out a sample textbook solution

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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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