Multiple choice questions on cash balances. Questions 1-2 are based on the fo...
Multiple choice questions on cash balances. Questions 1-2 are based on the following information: The Timberline firm expects a total need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month. 1. Based on the firm\'s current practice, what is the average daily cash balance (a month has 30 days)? a) $50.00 b) $69.44 c) $94.44 d) $138.89 e) None of the above. 2. What is the total fixed order cost for the next three months based on the firm\'s current practice? a) $29.17 b) $37.80 c) $55.60 d) $75.60 e) None of the above.static/image/hrline/1.gif
1.Timber line firm expects a total need of $12500 over next 3 monthsThe firm will need 12500/3=$4166.67 over next one monthOpening cash balance is$1500Based on the firm’s current practice,The average daily cash balance (a month has 30 days)= [(4166.67+1500)/2]/30=5666.67/2*30=$94.44Hence the average daily cash balance is $94.44.
2.Initial cash balance is $1500, cash is replenished (is got new supply of cash) when it becomes zero.We will have to calculate no of times cash balance becomes zero means no ofreplenish timesBy dividing need of cash balance with cash balanceSo 12500/1500=8.33 times cash is replenished by selling securities.
The fixed cost of selling securities to replenish cash balance is $3.50So total fixed order cost for the next three months based on the firm’s current practiceIs= 3.5 x 8.33=29.16So the answer is fixed order cost is $29.17
页:
[1]