Reese's Resources Faces a Smooth Annual Demand for Cash of $15

question 99

Multiple Choice

Reese's Resources faces a smooth annual demand for cash of $15 million, incurs transaction costs of $125 every time they sell marketable securities, and can earn 4.5 percent on their marketable securities. What will be their optimal cash replenishment level?

• A) $28,867.51
• B) $288,675.13
• C) $61,237.24
• D) $6,123.72

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Definitions:

Ownership Dilution

A reduction in an individual shareholder's ownership percentage due to the issuance of additional shares by the company.

Going Public

The process by which a previously privately-owned company offers shares to the public in a new stock issuance, often referred to as an IPO (Initial Public Offering).

Mass Investor Withdrawal

A situation where a large number of investors simultaneously withdraw their investments from a particular asset or market.

Run

A term that can describe a sustained period of demand for a product or currency, or a rapid sell-off in securities trading.