The Timberline firm expects a total need of €12,500 over the next 3 months. They
ID: 2670567 • Letter: T
Question
The Timberline firm expects a total 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.
What is the total opportunity cost for a month based on the firm's current practice?
€5.00
€18.98
€27.92
€60.00
None of the above.
Explanation / Answer
The Timberline firm expects a total 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.
What is the total opportunity cost for a month based on the firm's current practice?
€5.00
€18.98
€27.92
€60.00
None of the above.
=[(1,500+ 12,500)/2] /90 =77.78------------cash balance
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