Webber Limited plans to maintain cash balance of $8000. The variance of its daily cash flow to date is $4,000,000. The cost to buy or sell the firm’s security is approximately $50. The daily interest is 0.025%. Calculate: The lower limit The spread The upper limit The return point

Foundations of Business (MindTap Course List)
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ISBN:9781337386920
Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Publisher:William M. Pride, Robert J. Hughes, Jack R. Kapoor
Chapter16: Mastering Financial Management
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Webber Limited plans to maintain cash balance of $8000. The variance of its daily cash flow to date is $4,000,000. The cost to buy or sell the firm’s security is approximately $50. The daily interest is 0.025%.

Calculate:

  1. The lower limit
  2. The spread
  3. The upper limit
  4. The return point
Expert Solution
Step 1

Given information -

Maintain cash balance = $8000

Variance of daily cash flow to date=  $4,000,000

Cost to buy or sell the firm’s security = Transaction cost = $50

Daily interest = 0.025%

 

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