The baumol-tobin cash management model

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The Baumol-Tobin cash management model

The Chen Co. has determined that its operating circumstances are quite suitable for use of the Baumol-Tobin cash management model. The company consistently earns a five percent annual rate of return on its marketable securities and requires a total of $200,000 in cash each year to maintain its production. Transactions costs are $50 each time Chen liquidates marketable securities.

(a) What is the company’s optimum cash order quantity?

(b) What is the company’s optimum average cash balance

(d) What is the optimum number of days between orders for cash?

(e) What is the company’s total annual transactions cost incurred by using the optimum cash order quantity?

(f) What is the company’s annual foregone returns cost?

(g) What is the minimum total cost associated with obtaining and maintaining cash balances?

Reference no: EM13895682

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