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Cost cash balance according to baumol model

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Once each year, C Gordon Inc. receives a $2 million payment. Of this amount, $700,000 is needed for cash payments made during the next year. Each time Smith deposits money in its account, a charge of $3.00 is assessed to cover clerical costs. If Smith can hold marketable securities which yield 5 percent, and then convert these securities to cash at a cost of only the $3 deposit charge, what is the total cost for one year of holding the minimum cost cash balance according to the Baumol model?

a. $ 187
b.$ 374
c.$ 458
d.$3,741
e. $7,483

Reference no: EM131493115

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