Barenbaum Industries projects that cash outlays of $4.5 million will occur uniformlyThroughout the year. Barenbaum plans to meet its cash requirements by periodicallySelling marketable securities from its portfolio. The firm’s marketable securitiesAre invested to earn 12% and the cost per transaction of converting securities toCash is $27.a. Use the Baumol model to determine the optimal transaction size for transfers fromMarketable securities to cash.b. What will be Barenbaum’s average cash balance?c. How many transfers per year will be required?d. What will be Barenbaum’s total annual cost of maintaining cash balances? WhatWould the total cost be if the company maintained an average cash balance of $50 000Or of $0 (it deposits funds daily to meet cash requirements)?
