Fundamentals of Corporate Finance with Connect Access Card
Fundamentals of Corporate Finance with Connect Access Card
11th Edition
ISBN: 9781259418952
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 9QP
Summary Introduction

To determine: The upper limit and target cash balance.

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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Students have asked these similar questions
HotFoot Shoes would like to maintain its cash account at a minimum level of $42,000, but expects the standard deviation in net daily cash flows to be $5,700, the effective annual rate on marketable securities to be 5.8 percent per year, and the trading cost per sale or purchase of marketable securities to be $130 per transaction. What will be its optimal cash return point? (Use 365 days a year. Do not round intermediate calculations and round your answer to 2 decimal places.) Optimal cash return point $
HotFoot Shoes would like to maintain its cash account at a minimum level of $39,000, but expects the standard deviation in net daily cash flows to be $5,400, the effective annual rate on marketable securities to be 6.1 percent per year, and the trading cost per sale or purchase of marketable securities to be $160 per transaction. What will be its optimal cash return point? (Use 365 days a year. Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Hollywood Shoes would like to maintain their cash account at a minimum level of $64,000, but expect the standard deviation in net daily cash flows to be $5,400; the effective annual rate on marketable securities to be 7.00 percent per year, and the trading cost per sale or purchase of marketable securities to be $240 per transaction. What will be their optimal upper cash limit? Note: Round your answer to the nearest dollar amount. Multiple Choice $69,400 $83,546 $155.437 $86,922

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Fundamentals of Corporate Finance with Connect Access Card

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