The Norris Company Is Trying to Determine Its Optimal Average

question 24

Multiple Choice

The Norris Company is trying to determine its optimal average cash balance.
The firm has determined that it will need $5,000,000 net new cash during the coming year. The fixed transaction cost of converting securities to cash is $50, and the firm earns 10 percent on its marketable securities investments.
-What will be the total cost to Norris of maintaining the optimal average cash balance, as determined by the Baumol model?

• A) $35,356
• B) $ 7,071
• C) $18,493
• D) $70,711

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Definitions:

Variable-Interval

A schedule in operant conditioning where a response is rewarded after an unpredictable amount of time has passed.

Unpredictable

Describes something or someone that is not able to be predicted, due to variability in behavior or characteristics.

Reinforced

A process in which a behavior is strengthened by the outcome that follows it, making it more likely to occur in the future.

Positive Responses

Reactions or feedback that are affirmative, favorable, or supportive in nature, indicating agreement, pleasure, or endorsement.