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


Fixed order cost


Total cash needed


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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