Rose Resources Faces a Smooth Annual Demand for Cash of $10

question 65

Multiple Choice

Rose Resources faces a smooth annual demand for cash of $10 million, incurs transaction costs of $325 every time they sell marketable securities, and can earn 3.9 percent on their marketable securities. What will be their optimal cash replenishment level?

• A) $28,867.51
• B) $288,675.13
• C) $40,824.83
• D) $408,248.29

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Definitions:

Earnings Per Share

A profitability measure that indicates the portion of a company's profit allocated to each outstanding share of common stock, calculated as net income minus dividends on preferred stock divided by the average outstanding shares.

Earnings Before Taxes

A company's profit before taxation is deducted.

Industry Average

A statistical measure representing the typical performance within a particular industry, serving as a benchmark for evaluating individual companies.

Du Pont Identity

A formula that decomposes a company's return on equity into three components: profit margin, asset turnover, and financial leverage.