Epsilon S.A. wants to define the optimal average cash balance. The company has calculated that it will need 5,000,000 $ in net new capital in cash for the following year. The fixed transaction cost for converting titles into cash is 50% and the yield from its investment in titles is 10%. 

Calculate by using Baumol model which is the optimal transaction cost for converting negotiable securities into cash, the average remained cash of Epsilon and the total cost for having an optimal average cash balance.

Answer rating: 100% (QA)

To determine the optimal cash balance using the Baumol model well need to consider the following par... View the full answer