Reference no: EM131619510

Question: Riches and Associates retains its cash reserves primarily in the form of certificates of deposit (Ci:>s), which earn interest at an annual rate of 8%. Periodically, however; withdrawals must be made froro these CDs in order to pay supplier S, etc. These cash outflows are made through a checking account that earns no interest. The need for cash cannot be predicted with certainty. Transfers from CDs to checking can be made instantaneously, but there is a "substantial penalty" for early withdrawal from CDs. Therefore, it might make sense for R&A to make use of the overdraft protection on their checking account, which charges interest at a rate of $0.00033 per dollar per day (i.e., 12% per year) for overdrafts. R&A likes simple policies in which it transfers a fixed amount, a fixed number of times, per year. Currently, it makes 6 transfers per year, of $18,250 each time. Your job is to find a policy that reduces its long-run cost per day. Judging from historical patterns, demands for cash arrive a rate of about l per day, with the arrivals being modeled well as a Poisson process. The amount of cash needed to satisfy each demand is reasonably represented by a lognor mally distributed random variable with mean $300 and standard deviation $150. The penalty for early withdrawal is different for different CDs. It averages $150 for each withdrawal (regardless of size), but the actual penalty can be modeled as a uniformly distributed random variable with range $100 to $200. Use cash level in checking to determine the length of the initialization phase, Make enough replications that your confidence interval for the difference in long-run cost per day does not contain zero. Be sure to use CRN in your experiment design.