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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Thinking Big and Getting Rich

From rags to riches – it happens more often than you might think. In fact, it could be you! Are you content with life as it is or do you find yourself dreaming your way to riches? If you answered yes, then you are definitely on the right track because without your imagination – without dreaming – you are not going to get there.

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