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Penny Pinchers Inc.is attempting to implement a Baumol model for cash management.Given that Treasury bills offer a 7.5 percent return, that each sale of bills involves a fixed cost of $30, and that Pinchers disburses $6.5 million annually, determine the optimum amount of bills to sell each time.What will be the average cash balance under these assumptions?
Cash Flow
The complete financial movement into and out of a corporation, especially regarding its liquidity.
Equivalent Annual Annuity
A calculation used to compare the returns of investments with different payment schedules by converting them into an equivalent sum received at regular annual intervals.
Cost Of Capital
The minimum rate of return that a business must earn before generating value, representing the opportunity cost of investing resources in a specific company instead of elsewhere.
Cash Flow
The aggregate amount of cash and similar liquid assets flowing into and away from a business entity.
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