Schulte Fashions Begins Every Month with a Cash Balance of $8,000

Schulte Fashions begins every month with a cash balance of $8,000 which it depletes by the end of the month. The current market rate of return is 0.4% per month. Schulte is charged a fee of $20 each time it is forced to raise cash. In addition, history has shown that the monthly standard deviation of cash flows is $1,500. The firm has targeted a lower cash limit of $2,500.

What is the optimal initial cash balance for Schulte Fashion?

A) $3,105
B) $3,266
C) $3,827
D) $4,536
E) $4,727