Picard Industries Requires $250,000 a Week to Pay Its Bills

question 363

Multiple Choice

Picard Industries requires $250,000 a week to pay its bills. The fixed cost of transferring money is $65 per transfer. The standard deviation of the weekly cash flows is $25,000 and the lower cash balance limit is $40,000. Assume the applicable annual interest rate is 5% for the BAT model, and the applicable weekly interest rate is 0.1% for the Miller-Orr model.

Using the BAT model, what is the optimal average cash balance?

• A) $91,924
• B) $97,735
• C) $183,848
• D) $195,470
• E) $367,696

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Definitions:

Neuroticism

A personality trait that involves being tense, moody, irritable, and temperamental.

Tense

In linguistics, tense is a grammatical category that locates a situation in time, indicating when the event described by the verb takes place.

Moody

Characterized by frequent changes in mood or emotions; showing variability in feelings often unpredictably.

Extroversion And Introversion

Personality traits that describe how individuals are energized; extroversion involves drawing energy from social interactions, while introversion involves drawing energy from solitary activities.