Rose Axels faces a smooth annual demand for cash of $5.04 million, incurs transaction costs of...

Rose Axels faces a smooth annual demand for cash of $5.04 million, incurs transaction costs of $279 every time the company sells marketable securities, and can earn 4.7 percent on its marketable securities

What will be its optimal cash replenishment level? (Enter your answer in dollars not in millions. Round your answer to 2 decimal places.)

Solutions

Expert Solution

Optimal cash replacement level = [(2* Annual demand* Cost per transaction)/ rate of return on securities] ^½

= [(2* 5040000* 279)/0.047]^.5

= $244615.2

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