Question

In: Finance

The following table consists of cash flow data for a selected ten days. Day Receipts Disbursements...

The following table consists of cash flow data for a selected ten days.

Day	Receipts	Disbursements
1	60	40
2	70	60
3	90	60
4	60	100
5	90	70
6	50	30
7	110	80
8	130	140
9	80	100
10	90	110

A. Calculate the variance of net daily cash flows.

B. Assuming a lower limit of $300, a transaction cost of $15, and an annual interest rate of 8 percent, what is the upper limit and what is the return point using the Miller-Orr model?

Expert Solution

A)

Average net daily cash flows = Sum of net daily cash flows 10 = 40 10 = 4

The variance of the cash flow is calculated as follows

Variance of net daily cash flows = 544

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B)

Using the Miller -Orr model, the return point and upper limit are calculated as follows:-

Return point (RP) = 1129.76

Upper limit = 3RP - 2LL

Upper limit = 3 1129.76 - 2 300

Upper limit = 2789.28

jeff jeffy answered 1 year ago

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