The assistant treasurer of Monroe Tires, Inc., is trying to determine the appropriate cash level. The company's cash balances have been fluctuating wildly because of unpredictable and wide-ranging receipts and disbursements. The best estimate of annual disbursements is $1,000,000. The investment broker charges $100 per securities transaction. Short-term investment interest rates are 2%. The company does not mind a $0 cash balance but does not want the balance to be negative. According to the Baumol model, what is the optimal cash transfer level?

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The Baumol model is a cash management model that determines the optimal cash balance level in a comp... View the full answer