A business plans to use £20,000 of cash during the forthcoming year. It holds most of its cash in a deposit account from which it costs £30 to make each withdrawal and which pays interest at 10 per cent p.a. What is the optimal size for each withdrawal?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter17: The Management Of Cash And Marketable Securities
Section: Chapter Questions
Problem 2P
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A business plans to use £20,000 of cash during the forthcoming year. It holds most of its

cash in a deposit account from which it costs £30 to make each withdrawal and which pays

interest at 10 per cent p.a. What is the optimal size for each withdrawal?

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