Exhibit Duckett Group The Duckett Group Is Trying to Determine Its Optimal Average

question 25

Multiple Choice

Exhibit Duckett Group
The Duckett Group 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.
-Refer to Exhibit Duckett Group.According to the Baumol model, what should be Duckett's average cash balance?

• A) $35,356
• B) $3,536
• C) $22,157
• D) $70,711
• E) $42,918

Explore the relationship between natural resources and economic development.

Examine the implications of international trade and remittances on developing countries.

Recognize the importance of institutional elements in supporting economic activities.

Understand the strategic motives and financial implications of mergers and acquisitions.

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Definitions:

Net Capital Outflow

The difference between the domestic country's sale of assets to foreigners and its purchase of assets from foreigners during a specific period.

Loanable Funds

The market model representing the supply and demand for loans, where the interest rate is determined.

Demand

The desire of purchasers to buy a certain good or service, backed by the ability and willingness to pay a specific price.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing and the real yield to savers.