1. Under the term of government contract, ABC Ltd receives a cheque for 100000 every 20 weeks. these funds are then spent in steady stream until the next cheque is received. At present, ABC's policy is to hold $20000 in cash and to deposit the remaining $80000. Every few weeks, a further $20000 is withdrawn and spent. the interest rate is 0.4 per cent per week(or 8 per cent of the amount transacted.
Using Baumol's model, design an alternative cash management policy and calculate the cost savings that the alternative policy would achieve.© BrainMass Inc. brainmass.com June 3, 2020, 7:01 pm ad1c9bdddf
Q1.The firm's total cash requirement is 100,000/20=5000 per week or 5000*52=260,000per year, assuming cost per transaction as $ 7, balance and rate of interest is 8% than optimum cash is Sq.root of2* 7*260000/.08 this is 6745
The average cash balance in the above given case is 10,000
Therefore extra cost is incurred 10000-6745= 3255 and the annual cost on ...
Brief but clear sentences respond to posting. Computation shown for Q1.