Answer to Question #191259 in Finance for Earl

Question

Makmak Corporation uses the Baumol Cash Management Model to determine its optimal cash balance. For the coming year, the expected cash disbursement total P430,000. The interest rate on marketable securities is P8 per transaction. What is the optimal Cash Balance of the company?

Answer 1

Optimum Cash Balance =Total cash demand × Transaction Cost

Optimum Cash Balance=P430,000×P8

Optimum Cash Balance=P3,440,000