The opportunity cost , the trading cost, and whether Company DC holds very little cash. Introduction: Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

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Answer 1

Question

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

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Students have asked these similar questions

The Branson Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.5 percent per period. Price per unit Cost per unit Unit sales per month Current Policy $71 $37 3,050 New Policy $73 $37 ? What is the break-even quantity for the new credit policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Answer is complete but not entirely correct. Break-even quantity 3,200.00

Bird's Eye Treehouses, Incorporated, a Kentucky company, has determined that a majority of its customers are located in the Pennsylvania area. It therefore is considering using a lockbox system offered by a bank located in Pittsburgh. The bank has estimated that use of the system will reduce collection time by 1.5 days. Assume 365 days a year. Average number of payments per day Average value of payment Variable lockbox fee (per transaction) Annual interest rate on money market securities 850 $ 800 $.10 a. NPV b. NPV 3.2% a. What is the NPV of the new lockbox system? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose in addition to the variable charge that there is an annual fixed charge of $3,000 to be paid at the end of each year. What is the NPV now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

The Berry Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.5% per period. Price per unit Cost per unit Unit sales per month NPV Current Policy New Policy $ $ $ 38 3,280 Calculate the NPV of the decision to change credit policies. (Omit "$" sign In your response. Negative answer should be Indicated by a minus sign.) 38 3,398

Answer 2

Question

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

Expert Solution & Answer

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Answer 3

Question

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

Expert Solution & Answer

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Answer 4

Question

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 5

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

Answer 6

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

Answer 7

Chapter 19.A, Problem 4QP

a)

Summary Introduction

To determine: The opportunity cost, the trading cost, and whether Company DC holds very little cash.

Introduction:

Target cash balance refers to the level of cash that the company should maintain to determine the tradeoff between the carrying costs of cash and its adjustment or shortage costs. The carrying costs indicate the opportunity cost of cash, and the shortage cost indicates the trading costs.

Answer 8

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

Answer 9

b)

Summary Introduction

To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

Answer 10

Expert Solution & Answer

Answer 11

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Answer 12

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Answer 13

Ch. 19.1 - What is the transaction motive, and how does it...Ch. 19.1 - What is the cost to the firm of holding excess...Ch. 19.2 - Which would a firm be most interested in reducing,...Ch. 19.2 - Prob. 19.2BCQ Ch. 19.2 - Prob. 19.2CCQ Ch. 19.3 - Prob. 19.3ACQ Ch. 19.3 - Prob. 19.3BCQ Ch. 19.4 - Prob. 19.4ACQ Ch. 19.4 - What is a zero-balance account? What is the...Ch. 19.5 - What are some reasons why firms find themselves...

Solution Summary: The author explains that Company DC's trading costs are higher than its opportunity cost, which indicates that the company is selling its securities more often to replenish cash.

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To determine: The target cash balance using the BAT (Baumol‑Allais‑Tobin) model.

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