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Question
Exhibit 28.1The Duckett Group is trying to determine its optimal average cash balance. The firm has determined that it will need $5,000,000 net new cash during the coming year. The fixed transaction cost of converting securities to cash is $50, and the firm earns 10 percent on its marketable securities investments.
Refer to Exhibit 28.1. According to the Baumol model, what should be Duckett's average cash balance?
a. $35,356
b. $3,536
c. $22,157
d. $70,711
e. $42,918
Answer
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