BAUMOL MODEL 1. Rosal Inc. is trying to determine its optimum average cash balance. The firm...

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BAUMOL MODEL 1. Rosal Inc. is trying to determine its optimum average cash balance. The firm has determined that it will require P5,000,000 net new cash during the coming year. Converting securities to cash has a fixed transaction cost of P50, and the company gains 10% on its marketable securities investments. (9 points) a) According to the Baumol model, what is the optimal transaction size for transfers from marketable securities to cash? b) According to the Baumol model, what should be Rosal's average cash balance? c) What will be the total cost to Rosal of maintaining the optimal average cash balance, as determined by the Baumol model? INVENTORY MANAGEMENT EOQ MODEL 2. Sunflower Corp. plans to order 126,000 calculator batteries for inventory in the coming year. This inventory will be used at a constant pace. The fixed ordering costs are P200 per order, the selling price per chip is P25. According to the record, firm's inventory carrying costs are 20% of the purchase price. (Assume 360 days in a year.) (12 points) a) What is the economic ordering quantity for batteries? b) If Sunflower holds a safety stock equal to a 30-day supply of batteries, what is its average inventory level? c) Assume that Sunflower holds a safety stock equal to a 30-day supply of batteries. What is the maximum amount of inventory that will have on hand at any time, that is, what will be the inventory level right after a delivery is made? d) How many orders should Sunflower place during the year? CURRENT LIABILITIES MANAGEMENT 3. Stargazer Company purchases on terms of 2/15, net 30 days. It does not accept discounts and usually pays within 30 days of the invoice date. Annual net sales amount to P730,000. How much "free" trade credit does Stargazer earn on average per year? (Assume a calendar year of 365 days.) (4 points) BAUMOL MODEL 1. Rosal Inc. is trying to determine its optimum average cash balance. The firm has determined that it will require P5,000,000 net new cash during the coming year. Converting securities to cash has a fixed transaction cost of P50, and the company gains 10% on its marketable securities investments. (9 points) a) According to the Baumol model, what is the optimal transaction size for transfers from marketable securities to cash? b) According to the Baumol model, what should be Rosal's average cash balance? c) What will be the total cost to Rosal of maintaining the optimal average cash balance, as determined by the Baumol model? INVENTORY MANAGEMENT EOQ MODEL 2. Sunflower Corp. plans to order 126,000 calculator batteries for inventory in the coming year. This inventory will be used at a constant pace. The fixed ordering costs are P200 per order, the selling price per chip is P25. According to the record, firm's inventory carrying costs are 20% of the purchase price. (Assume 360 days in a year.) (12 points) a) What is the economic ordering quantity for batteries? b) If Sunflower holds a safety stock equal to a 30-day supply of batteries, what is its average inventory level? c) Assume that Sunflower holds a safety stock equal to a 30-day supply of batteries. What is the maximum amount of inventory that will have on hand at any time, that is, what will be the inventory level right after a delivery is made? d) How many orders should Sunflower place during the year? CURRENT LIABILITIES MANAGEMENT 3. Stargazer Company purchases on terms of 2/15, net 30 days. It does not accept discounts and usually pays within 30 days of the invoice date. Annual net sales amount to P730,000. How much "free" trade credit does Stargazer earn on average per year? (Assume a calendar year of 365 days.) (4 points)