Question: Penny Pinchers Inc. is attempting to implement a Baumol model for cash management. Given that Treasury bills offer a 7.5 percent return, that each sale

  1. Penny Pinchers Inc. is attempting to implement a Baumol model for cash management. Given that Treasury bills offer a 7.5 percent return, that each sale of bills involves a fixed cost of $30, and that Pinchers disburses $6.5 million annually, determine the optimum amount of bills to sell each time. What will be the average cash balance under these assumptions?

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