The Norris Company Is Trying to Determine Its Optimal Average

question 8

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.
-According to the Baumol model, what is the optimal transaction size for transfers from marketable securities to cash?

• A) $ 7,071
• B) $ 38,357
• C) $ 70,711
• D) $102,956
• E) $ 87,000

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