A$.$ Bramwell Limited has experienced a random demand for its product, which results in randomly fluctuating cash balances. The following information is supplied:

i$.$ Fixed cost of a securities transaction ii$.$ Standard deviation of daily net cash flows $$100$ $$1,000$ iii. Interest rate on marketable securities $6\%$

Required:

a$.$ Determine the daily opportunity cost $($interest rate$)$ and the variance of daily cash flow. $(2$ marks$)$

b$.$ the optimal cash and average cash balance. $(3$ marks$)$

c$.$ the upper and lower limit of cash balance. $(2$ marks$)$

d$.$ Explain the amount of short$-$term securities to be purchased or sold once the upper limit or lower limit is reached. $(3$ marks$)$

B$.$ Hardmill$$s Manufacturing Company presents the following information from the accounting records concerning sales and discount policy:

C$.$

i$.$ Current annual credit sales $$24,00$

ii$.$ ii$.$ Collection period $3$ months

iii. Terms net$/30$

iv$.$ Rate of return $18\%$

The company is considering offering a $4/10,$ net$/30$ discount. It anticipates that $30$ percent of its customers will take advantage of the discount. The collection period is expected to decrease to two $(2)$ months.

Required:

Should the discount policy be implemented by the company? Give reasons to support or reject your position on the policy. $(10$ marks$)$