Williams Company's Optimal Cash Transfer Amount, Using the Baumol Model

question 18

Multiple Choice

Williams Company's optimal cash transfer amount, using the Baumol model, is $60,000. The firm's fixed cost per cash transfer of marketable securities to cash is $180, and the total cash needed for transactions annually is $960,000. In addition, the total estimated cash costs (transfers and carrying cost) for the firm, based on 16 transactions per year, are $5,760. On what opportunity cost of holding cash was this analysis based?

• A) 19.2%
• B) 10.4%
• C) 6.3%
• D) 12.1%
• E) 9.6%

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