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:

Taxpayer

An individual or entity that is obligated to pay taxes to a federal, state, or local government based on income earned, property owned, or consumption.

Casualty Loss Deduction

A tax deduction that allows taxpayers to deduct losses caused by sudden, unexpected or unusual events such as natural disasters, fires, or thefts.

Fair Market Value

The price at which an asset would sell under normal market conditions between a willing buyer and seller, both having reasonable knowledge of the facts.

Adjusted Gross Income

An individual's total gross income minus specific deductions, used to determine taxable income.