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VII. Short-Term Financial Planning and Management

20. Cash and Liquidity Management

© The McGraw-Hill Companies, 2002

PART SEVEN Short-Term Financial Planning and Management

T = $600,000 X 52 weeks = $31.2 million. If the initial cash balance is set at C = $1.2 million, then Golden Socks will sell $1.2 million in marketable securities TIC = $31.2 million/1.2 million = 26 times per year. It costs F dollars each time, so trading costs are given by:

$31.2 million

$1.2 million

In general, the total trading costs will be given by: Trading costs = (TIC) X F

In this example, if F were $1,000 (an unrealistically large amount), then the trading costs would be $26,000.

We can calculate the trading costs associated with some different strategies as follows:

Total Amount of Disbursements during Relevant Period

Initial Cash Balance

Trading Costs (F = $1,000)

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