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

question 21

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 opportunity cost of holding cash?

• A) $3,117
• B) $4,596
• C) $5,580
• D) $7,664
• E) None of these.