Optimal cash balance. The Madatung Corporation plans to have P1 million I steady cash outlays for next year. The firm believes that it will face an opportunity interest rate of 15% and will incur a cost of P 200 each time it borrows (or withdraws).

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Optimal cash balance. The Madatung Corporation plans to have P 1 million in
steady cash outlays for next year. The firm believes that it will face an
opportunity interest rate of 15% and will incur a cost of P 200 each time it
borrows (or withdraws).
Required: Using the Baumol Model:
1. Determine the transactions demand for cash (the optimal borrowing or
withdrawal lot size) for Madatung Company.
2. What will be the cash cycle for the firm (in days)?
3. What would be the average cash balance for the firm?
4. Compute the total relevant cost of cash balance.
Jor
Transcribed Image Text:Optimal cash balance. The Madatung Corporation plans to have P 1 million in steady cash outlays for next year. The firm believes that it will face an opportunity interest rate of 15% and will incur a cost of P 200 each time it borrows (or withdraws). Required: Using the Baumol Model: 1. Determine the transactions demand for cash (the optimal borrowing or withdrawal lot size) for Madatung Company. 2. What will be the cash cycle for the firm (in days)? 3. What would be the average cash balance for the firm? 4. Compute the total relevant cost of cash balance. Jor
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