Fundamentals of Corporate Finance
Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 19.A, Problem 5QP

Determining Optimal Cash Balances The All Day Company is currently holding $690,000 in cash. It projects that over the next year its cash outflows will exceed cash inflows by $140,000 per month. How much of the current cash holdings should be retained, and how much should be used to increase the company’s holdings of marketable securities? Each time these securities are bought or sold through a broker, the company pays a fee of $250. The annual interest rate on money market securities is 3.2 percent. After the initial investment of excess cash, how many times during the next 12 months will securities be sold?

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Fundamentals of Corporate Finance

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