Models of Cash Management - Cash Management Model Cash...

This preview shows page 1 - 7 out of 16 pages.

Cash Management Model
Image of page 1

Subscribe to view the full document.

Cash Management Model A number of mathematical model have been to develop to determined the optimal cash balance. Two of such model are as follow; a) William J. Baumol's inventory model b)M. H. Miller and Daniel Orr’s Stochastic model
Image of page 2
William J. Baumol's Inventory model Baumol’s model of cash management- Trades off between opportunity cost or carrying cost or holding cost & the transaction cost. As such firm attempts to minimize the sum of the holding cash & the cost of converting marketable securities in to cash. Helps in determining a firm's optimum cash balance under certainty
Image of page 3

Subscribe to view the full document.

William J. Baumol's Inventory model Assumptions Cash needs of the firm is known with certainty Cash Disbursement over a period of time is known with certainty Opportunity cost of holding cash is known and remains constant Transaction cost of converting securities into cash is known and remains constant
Image of page 4
William J. Baumol's Inventory model Algebraic representation of William J. Baumol's Inventory model C = 2A*F C = Optimum Balance A = Annual Cash Distribution F = Fixed Cost Per Transaction O = Opportunity Cost Of Holding o
Image of page 5

Subscribe to view the full document.

William J. Baumol's Inventory model
Image of page 6
Image of page 7

{[ snackBarMessage ]}

Get FREE access by uploading your study materials

Upload your study materials now and get free access to over 25 million documents.

Upload now for FREE access Or pay now for instant access
Christopher Reinemann
"Before using Course Hero my grade was at 78%. By the end of the semester my grade was at 90%. I could not have done it without all the class material I found."
— Christopher R., University of Rhode Island '15, Course Hero Intern

Ask a question for free

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern