Halliday Inc

question 16

Multiple Choice

Halliday Inc.receives a $2 million payment once a year.Of this amount, $700,000 is needed for cash payments made during the next year.Each time Halliday deposits money in its account, a charge of $2.00 is assessed to cover clerical costs.If Halliday can hold marketable securities that yield 5 percent, and then convert these securities to cash at a cost of only the $2 deposit charge, what is the total cost for one year of holding the minimum cost cash balance according to the Baumol model?

• A) $7,483
• B) $187
• C) $3,741
• D) $374
• E) $748

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