Appendix Review and Self Test Problem

20A.1 The BAT Model Given the following information, calculate the target cash balance using the BAT model:

3A basis point is 1 percent of 1 percent. Also, the annual interest rate is calculated as (1 + ft)365 = 1.0757, implying a daily rate of .02 percent.

Ross et al.: Fundamentals of Corporate Finance, Sixth Edition, Alternate Edition

VII. Short-Term Financial Planning and Management

20. Cash and Liquidity Management

© The McGraw-Hill Companies, 2002

CHAPTER 20 Cash and Liquidity Management

Annual interest rate

12%

Fixed order cost

$100

Total cash needed

$240,000

What are the opportunity cost of holding cash, the trading cost, and the total cost? What would these be if $15,000 were held instead? If $25,000 were held?

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