Marketable securities
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The Joe Elvis Company is currently holding $700,000 in cash. It projects that over the next year its cash outflows will exceed cash inflows by $360,000 per month. How much of the current cash holding should be retained, and how much should be used to increase the company's holdings of marketable securities? Each time these securities are bought or sold through a broker, the company pays a fee of $500. The annual interest rate on money market securities is 6.5 percent. After the initial investment of excess cash, how many times during the next 12 months will securities be sold?
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Solution Summary
The solution explains how to determine the number of times the marketable securities will be sold.
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Total cash need in the year = the per month cash shortage X 12 months per year = 360,000X12=$4,320,000
Based on the cash shortage we can calculate the target cash balance using the ...
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