1) A Inc
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1) A Inc. has a pool of cash that it uses to pay bills. When the cash is exhausted, it replenishes its pool by selling T-bills. The firm disburses P600,000 in cash every year, and every sale of T-bills costs P60. The current risk-free rate is 8%. What is the optimal cash balance for A Inc.?
2) A firm needs a total of P30M in new cash for transaction purposes. The annual interest rate on marketable securities is 10% and the brokerage cost per transaction of selling securities to replenish cash is P1,000. What is the firm’s optimal average cash balance?
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