Rosie O'Grady's spends $98,000 a week to pay bills and maintains a lower cash balance limit of $95,000. The standard deviation of the disbursements is $14,600. The applicable interest rate is 4.8 percent and the fixed cost of transferring funds is $50. What is this firm's total cost of holding cash based on the BAT model?

Question

Quizplus · Accepted Answer

Optimal initial cash balance = Opportunity cost = Trading cost = [52/($103,037.21/$98,000)] F1F1F1S1F1F1F10 $50 = $2,472.893Total cost = $2,472.893 + $2,472.893 = $4,946

Rosie O'Grady's Spends $98,000 a Week to Pay Bills and Maintains