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What is the maximum balance and reorder point

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Question - Company A projects cash outflows to exceed inflows by $3 million over the first four months of the year. If its opportunity cost for investment of cash is 3% (effective annual rate of line of credit) and the fixed cost of obtaining cash is $120 per transaction and it must carry a compensating balance which averages $450,000.

a. What is the optimal transaction size for transfer of money into the cash account?

b. What is the maximum balance and reorder point in the company's checking account during the four months?

Reference no: EM132953498

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