The Timberline firm expects a total cash need of $12,500 over the next 3 months.

Question

The Timberline firm expects a total cash need of $12,500 over the next 3 months. They have a beginning cash balance of $1,500, and cash is replenished when it hits zero. The fixed cost of selling securities to replenish cash balances is $3.50. The interest rate on marketable securities is 8% per annum. There is a constant rate of cash disbursement and no cash receipts during the month. Based on the firm's current practice, how many times during the next 3 months will the cash balance be replenished?

Explanation / Answer

Answer: Calculation of the cash balance be replenished:

Replenish Times = Cash Needs/Cash Balance = $12,500/$1,500 = 8.33 times

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