A company spends €319,600 a week to pay bills and maintains a lower cash balance limit of €65,000. The applicable interest rate is 3.26 percent and the fixed cost of transferring funds is €43. What is the optimal initial cash balance based on the BAT model? (5 points)

Amount company spend per week = €319,600
Thus, the amount company spend in a year = Amount company spend per week * No. of weeks
= €319,600 * 52
= €16,619,200

Amount of fixed cost of transferring the funds = €43
Interest Rate = 3.26%

The optimal initial cash balance =
( 2 * amount company spend in a year * Amount of fixed cost of transferring the funds / Interest rate ) ^ 1/2
= ( 2 * 16,619,200 * 43 / 0.0326 ) ^ 1/2
= €2,09,384.95

Therefore, the optimal initial cash balance is €209,384.95