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

question 141

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 total cost of holding cash?

• A) $3,117
• B) $4,596
• C) $5,580
• D) $8,664
• E) $9,192

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Definitions:

Operating Cash Flow

The cash generated from the normal operating processes of a business, reflecting the company's ability to generate sufficient cash to meet its operating expenses.

Book Value

The difference between a company's total assets and its total liabilities, as shown in the balance sheet.

Statement of Financial Position

A financial statement detailing a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial health.

Shareholders' Equity

The residual interest in the assets of a corporation that remains after deducting its liabilities, representing ownership interest.