The annual cash requirement of A Ltd. is Rs 15 lakhs. The company has marketable securities in lot sizes of Rs 1, 00,000, Rs 2,00,000 and Rs 3, 00,000 and Rs 5,00,000. Cost of conversion of marketable securities per lot is Rs 1,800. The company can earn 5.0% annual yield on its securities.

You are required to prepare

i. Prepare a table under the Baumol Model indicating which lot size is the most economical for selling.

ii. Calculate the economic lot size by the Baumol Model.

Answer rating: 100% (QA)

Baumol Model is used to determine the optimal cash balance a company should maintain to minimize the ... View the full answer