BullsNBears, a purveyor of financial databases, estimates it they disburses $440,000 monthly in order to pay bills. The firm's opportunity rate is 5%. The fixed cost of transferring money is $25 per transfer. Based on historical data, the standard deviation of monthly cash flows is $15,000 and the lower cash balance limit is $20,000. For Miller-Orr model questions, assume the interest rate is 0.5% per month. Using the Miller-Orr model, what is the optimum initial cash balance?

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To determine the optimum initial cash balance using the MillerOrr model we need to consider the firm... View the full answer