Wilson Products Ltd estimates that the standard deviation of its daily change in cash balance is $30000. The fixed cost of each withdrawal and injection of cash is $10 and the daily management yield on its investment is 0.0006. Wilson does not operate on an overdraft.
Calculate the target level and upper limit for a cash management approach that uses the Miller and Orr model. What problems do you foresee if approach is implemented?
Target cash balance is computed for you and four problems are mentioned. No references.