Cash account be used to purchase interest bearing investment

Assignment Help Financial Management
Reference no: EM132044615

A company’s cash balance varies randomly from day to day. It costs the company $30.00 per transaction to move funds from the cash account (which is non-interest bearing) to an account that earns interest or to move funds from the interest bearing account to the cash account. Its average return on interest bearing securities is 1.65%. The company wants to maintain a minimum cash balance of $40000. The variance of the company’s daily cash balance is 241,025,000. 1. When the company’s cash balance reaches $40000, how much money should be added to the cash account by selling interest bearing investments? 2a. At what cash account balance (upper limit) will funds from the cash account be used to purchase interest bearing investments? b. What dollar amount of interest bearing investments will be purchased when the cash account balance reaches the amount indicated in part a. 3a. How would the results (answer to questions 1 and 2a and b) change if the variance of daily cash balance were to increase by 30%? b. How would the results (answer to questions 1 and 2a and b) change if the interest rate were to increase to 2.00%? c. How would the results (answer to questions 1 and 2a and b) change if the costs to convert to or from cash were to increase to $35?

Reference no: EM132044615

Questions Cloud

What were excess reserves of depository institutions : What were excess reserves of depository institutions in August of 2008 to the nearest billion? Do not use a $ sign.
Evaluate proposed spectrometer : New project analysis You must evaluate a proposed spectrometer for the R&D department. If the WACC is 11%, should the spectrometer be purchased?
An investor is evaluating two-asset portfolio : An investor is evaluating a two-asset portfolio of the following securities: Stock Expected Return Expected Risk (?) Correlation (?)
Motivations for counter party to enter into currency swap : Discuss the basic motivations for a counter party to enter into a currency swap.
Cash account be used to purchase interest bearing investment : At what cash account balance (upper limit) will funds from the cash account be used to purchase interest bearing investments?
What is the company cost of equity capital : If the risk-free rate is 4.5 percent and the expected return on the market is 11 percent, what is the company’s cost of equity capital?
Describe the benefits of diversification : Describe the benefits of diversification if any including adding international stocks to your investment portfolio?
How many shares can the firm repurchase : How many shares can the firm repurchase if it issues the debt securities?
The economy booms and the firm maintains all-equity status : If the economy booms and the firm maintains its all-equity status, then the earnings per share (EPS) will be _____.

Reviews

Write a Review

Financial Management Questions & Answers

  Risk caused by this receivable by borrowing or lending money

How could Dell mitigate the risk caused by this receivable by borrowing or lending money.

  Preferred stock in the computation of farcry wacc

What weight should you use for preferred stock in the computation of FarCry’s WACC?

  How many units must be sold to achieve the target profit

Crow, Inc., a not-for-profit company, has a product contribution margin of $40. The fixed costs are $800,000. Crow, Inc., has set a target profit of $35,000 per year. A. What is the breakeven point in units? B. How many units must be sold to achieve ..

  Suggested cash management system free up

Proposal would establish local collection centers throughout the region to decrease the time it takes to convert credit payments that are mailed in by check to cash. It is estimated that establishing these collection centers would reduce the average ..

  Assume that market is in equilibrium

Bet'R Bilt Bikes just announced that their annual dividend for this coming year will be $1.42 a share and that all future dividends are expected to increase by 2.5% annually. What is the market rate of return if this stock is currently selling for $1..

  What is andrea profit or loss per unit

If the future spot rate of the Canadian dollar is $0.85, what is Andrea's profit or loss per unit?

  Major regulatory failures in terms of managing its risks

Does JP Morgan have major regulatory failures in terms of managing its risks?

  Mutual fund at the fund net asset value

Suppose that a few months ago you purchased a given number of shares of a mutual fund at the fund’s Net Asset Value (NAV) which,

  What is the firms net operating working capital

The assets of Dallas & Associates consist entirely of current assets and net plant and equipment. The firm has total assets of $2.6 million and net plant and equipment equals $2.1 million. It has notes payable of $140,000, long-term debt of $745,000,..

  What is the dollar amount of income

what is the dollar amount of income that she needed to have to reach her objective?

  Determine the NINV required to purchase the new drill

Ten years ago T-Bone Company purchased a drill for $250,000. It was being depreciated on a straight line basis to an estimated $25,000 salvage value over a 15 year period. The firm is considering selling the old drill and purchasing a new one that wo..

  Discuss the difference in value of these two stations

Discuss the difference in value (if any) of these two stations

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd