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Determine optimal size of the company transfer of funds

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Question - Maendeleo Company anticipates Sh.150 million in cash outlays during the next year. The outlays are expected to occur equally throughout the year. The company's treasurer reports that the firm can invest in marketable securities yielding 8% and the cost of shifting funds from marketable securities portfolio to cash is Sh.7, 500 per transaction. Assume the company will meet its cash demands by selling marketable securities.

Required -

1. Determine optimal size of the company's transfer of funds from marketable securities to cash using the Baumol Model?

2. What will be the company's average cash balance assuming you use the Baumol model?

Reference no: EM133018315

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