Steve Carter is CFO of a small temporary labor supplier. Steve is setting up an account to hold cash that the company needs to pay its monthly bills. Cash needs average $10,000 each month with a standard deviation of daily demand of $50. Steve estimates the company’s opportunity cost of capital (the cost to hold cash for a year) at about 30 percent. Adding more cash by taking it from operating funds or short term loans takes one day and costs $50 to process required transactions.

a. How often should Steve add money to the cash account?
b. How much should he add to the account each time?
c. How much extra cash should Steve hold on hand to provide at least a 95 percent
chance that the company will never run out of cash?
d. How much cash should be left in the account when Steve orders more cash?
e. How much cash will the company hold on average?