The management of Peterson Ltd. Has ascertained that the firm will require sh. 5000000 in cash for transaction purposes during the coming financial year. The interest...

      

The management of Peterson Ltd. Has ascertained that the firm will require sh. 5000000 in
cash for transaction purposes during the coming financial year. The interest rate on
marketable securities is presently 10% per annum and is expected to remain constant over the next one year. The cost of converting marketable securities to cash is sh. 100 per transaction.
Using the Baumol cash management model, determine the following;
i. Optimal cash conversion size
ii. Average cash balance
iii. How often (in days) the firm should make conversions
iv. The total cost of managing the optimal cash balance.

  

Answers

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NatalieR answered the question on June 17, 2022 at 08:08

Next: Discuss the concept of Baumol’s model of cash management
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