Picard Industries requires $250,000 a week to pay its bills. The fixed cost of transferring money is $65 per transfer. The standard deviation of the weekly cash flows is $25,000 and the lower cash
Balance limit is $40,000. Assume the applicable annual interest rate is 5% for the BAT model, and
The applicable weekly interest rate is 0.1% for the Miller-Orr model.
Using the BAT model, what is the optimal average cash balance?
A) $91,924
B) $97,735
C) $183,848
D) $195,470
E) $367,696
Correct Answer:
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