Question: Clarks Back Ltd (CBL) uses the Miller-Orr model to determine when, and by how much, to top up its cash balance. CBLs treasurer has determined

Clarks Back Ltd (CBL) uses the Miller-Orr model to determine when, and by how much, to top up its cash balance. CBLs treasurer has determined the following:

the fixed cost associated with buying and selling marketable securities is $200.

the interest rate is currently 0.025 percent per day

estimated standard deviation of daily net cash flows is $125

If management sets a lower limit of $2,500 on cash holdings, calculate both the target cash balance and the upper limit using the Miller-Orr model.

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