Asked by Akadiri Olalekan on Jul 15, 2024
Verified
In the Miller-Orr model of cash management a firm must do each of the following EXCEPT:
A) Determine the variance of the cash flow per period.
B) Determine the cost per transaction of buying and selling securities.
C) Determine the opportunity cost of holding cash.
D) Determine the upper cash balance limit.
E) Determine the firm's required safety stock of cash.
Miller-Orr Model
A financial model used to manage cash balances by setting upper and lower limits on cash reserves, triggering buying or selling of securities when these thresholds are crossed.
Safety Stock
Safety stock is additional inventory held by a business to prevent stockouts caused by variations in supply and demand.
Cash Flow
Cash Flow refers to the net amount of cash being transferred into and out of a business, indicating the company's liquidity over a certain period.
- Gain insights into the Miller-Orr and BAT models for optimal cash management.
Verified Answer
AN
anastasie nguebihJul 16, 2024
Final Answer :
D
Explanation :
The Miller-Orr model focuses on determining the variance of cash flows, the transaction costs, the opportunity cost of holding cash, and setting a lower cash balance limit and a target balance, which acts as a control limit. It does not specifically require determining an upper cash balance limit; instead, it sets a range within which the cash balance should be maintained.
Learning Objectives
- Gain insights into the Miller-Orr and BAT models for optimal cash management.