The Norris Company Is Trying to Determine Its Optimal Average

question 13

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
• E) $53,190

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Definitions:

Revenue Recognition

Revenue recognition is the accounting principle dictating the specific conditions under which revenue is recognized and recorded, ensuring it accurately reflects business transactions.

Consignment-in

Goods held for sale by one party although ownership is retained by another party.

Commissions Earned

Income received by salespersons, brokers, or agents based on sales or transactions completed.