Exhibit Duckett Group The Duckett Group Is Trying to Determine Its Optimal Average

question 15

Multiple Choice

Exhibit Duckett Group
The Duckett Group is trying to determine its optimal average cash balance.The firm has determined that it will need $5,000,000 net new cash during the coming year.The fixed transaction cost of converting securities to cash is $50, and the firm earns 10 percent on its marketable securities investments.
-Refer to Exhibit Duckett Group.What will be the total cost to Duckett of maintaining the optimal average cash balance, as determined by the Baumol model?

• A) $35,356
• B) $7,071
• C) $18,493
• D) $70,711
• E) $53,190

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Definitions:

Depreciation Expense

An accounting method to allocate the cost of a tangible asset over its useful life to represent wear and tear over time.

Straight-Line Method

A method of calculating depreciation that spreads the cost of an asset evenly over its useful life.

Gain or Loss

The financial result from selling assets or settling liabilities at amounts different from their carrying amount, showing either a profit (gain) or deficit (loss).

Canadian Intellectual Property Office

A government agency responsible for the administration and processing of the intellectual property system in Canada.