Explain about types of costs, Financial Management

Assignment Help:

Q. Explain about Types of costs?

Thus two types of costs are involved in keeping cash balance in a business-

(i) Opportunity Cost

(ii) Transaction Cost

When cash balance increases, opportunity cost increases but transaction cost decreases. Alternatively when cash balance is less signifies opportunity cost decreases but transaction cost increases.

Optimal cash balance is that level of cash at which the opportunity cost and transaction cost becomes equal. In other sense total cost of keeping cash balance will be minimum if both of its components that are opportunity cost and transaction cost are equal.

Assumptions: - The Baumol Model is on the basis of following assumptions:-

(i) The cash requirements of the firm are known with certainty

(ii) The cash disbursements of the firm takes place uniformly over a period of time and is known with certainty

(iii)The opportunity cost of holding cash is recognized and it remains constant.

(iv) The transaction rate of converting securities into cash is known as well as remains constant.


Related Discussions:- Explain about types of costs

Benefits of going private company, Benefits of Going private company A...

Benefits of Going private company A public company has its shares purchased by a small group of people and ceases to be listed on stock exchange. This has many benefits includ

Credit card receivable-backed securities, For holders of CARDS,...

For holders of CARDS, the interest is paid monthly and the principal is not amortized. The principal payments made by credit card borrowers are

Financial management assignment, You have just had your 30 th birthday. Yo...

You have just had your 30 th birthday. You have two children. One will go to college 12 years from now and require four yearly payments for college expenses of RM11,000, RM12,000

Role of primary dealers, Role of Primary Dealers To promote the investm...

Role of Primary Dealers To promote the investment activity in the Government Securities market, several countries have adopted licensed Primary Dealers (PDs) as important inter

Role of market efficiency, Role of market efficiency: Market efficiency...

Role of market efficiency: Market efficiency signifies how ‘quickly and accurately' does relevant information have its effect on the asset prices. Depending upon the degree of

Players in primary market, PLAYERS IN THE PRIMARY MARKET Some important...

PLAYERS IN THE PRIMARY MARKET Some important players in the primary market are: Merchant Bankers When a company approaches the public for funds, merchant bankers manage

Sales of the firm, The financial ratios of a firm are given:     Current ra...

The financial ratios of a firm are given:     Current ratio    =  1.33   Acid-test ratio   =  0.80   Current liabilities  = 40,000   Inventory turnover ratio = 6    What is the

Approaches to financial management, mention the advantages and disadvantage...

mention the advantages and disadvantages of the traditional approach

Determine the working capital in the firm, a) Year 2 Current Ratio = 700 / ...

a) Year 2 Current Ratio = 700 / 300 = 2.33 : 1 Year 1 Current Ratio = 500 / 200 = 2.5 : 1 Year 2 Acid Test = (700 - 350) / 300 = 1.17 : 1 Year 1 Acid Test = (500 - 250) / 200 =

Write Your Message!

Captcha
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