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David's Corporation holding cost of investment

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David's Corporation uses about $1 million in cash each month. The sale of marketable securities to meet any cash deficiencies costs the firm $100 per transaction David's Corp. invests its short-term funds in securities which earn an average of 7%. If each time the firm needs cash it sells $400,000 of securities, what is the holding cost associated with the cash investment?

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Solution Summary

Holding cost is calculated as the lost revenue from investing this cash

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First of all the average cash balance of the firm, assuming it lets the cash ...

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Umut Oltulu, MBA
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  • MBA, Texas A&M University-Kingsville
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