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The Timberline fiRm Expects a Total Need of €12,500 Over

question 40

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The Timberline firm expects a total need of €12,500 over the next 3 months.They have a beginning cash balance of €1,500, and cash is replenished when it hits zero.The fixed cost of selling
Securities to replenish cash balances is €3.50.The interest rate on marketable securities is 8% per
Annum.There is a constant rate of cash disbursement and no cash receipts during the month.
If interest rates were to rise to 1.00% per month, what would the firm's total savings be if it switches
From its current practice to the optimum practice (as given by the Baumol model) ?


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