Rose N More Resources Faces a Smooth Annual Demand for Cash

question 95

Multiple Choice

Rose N More Resources faces a smooth annual demand for cash of $50 million, incurs transaction costs of $350 every time they sell marketable securities, and can earn 5.2 percent on their marketable securities. What will be their optimal cash replenishment level?

• A) $18,708.29
• B) $187,082.87
• C) $82,041.27
• D) $820,412.65

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Definitions:

Defective Units

Products that fail to meet quality standards or specifications and are therefore unfit for sale or use.

Production Constraint

Any factor that limits the output of a production process, such as limited raw materials, machine capacity, or labor.

Contribution Margin

The difference between sales revenue and variable costs of production, indicating how much revenue contributes to fixed costs and profit.

Constrained Resource

A limiting factor that restricts a company's ability to produce or perform at its maximum capability.