Suppose that interest rates double. a. What, according to the Baumol model, would happen to the firms

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Suppose that interest rates double.

a. What, according to the Baumol model, would happen to the firm’s average cash balances?

b. Recalculate the gain from operating the lock-box system described in Section 31.1 given the new level of interest rates.

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Principles of Corporate Finance

ISBN: 978-0072869460

7th edition

Authors: Richard A. Brealey, Stewart C. Myers

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Question Posted: Jun 08, 2011 07:01 AM

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Suppose that interest rates double. a. What, according to the Baumol model, would happen to the firms

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a The average cash balance is Q2 where Q is given by ...View the full answer

Principles of Corporate Finance

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