A fiRm Uses the Miller-Orr Model with a Minimum Balance

question 87

Multiple Choice

A firm uses the Miller-Orr model with a minimum balance of €10, a maximum of €80, and a target balance of €40.If the cash balance was to hit €10, what would the firm do?

• A)Buy €10 in marketable securities.
• B)Buy €30 in marketable securities.
• C)Sell €30 in marketable securities.
• D)Sell €60 in marketable securities.
• E)None of the above.

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Definitions:

Trend Balance Sheet

A trend balance sheet is a financial statement that shows the progression of key financial data over a series of periods, illustrating trends.

Long-Term Liabilities

Obligations or debts that a company is responsible for paying which are due more than one year in the future.

Total Liabilities & Equity

The sum of all financial obligations and owners' equity of a business, representing the sources of funding for its assets.

Common Size Income Statement

A financial statement that presents all items as a percentage of a common base figure, making it easier to analyze changes and compare financial performance over time.