fm28 12 - needed each year and the carrying cost per dollar...

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k. Webster runs a $100,000 cash deficit per month, requiring periodic transfers from its marketable securities portfolio. Broker fees are $32 per transfer and Webster earns 7% on its investment portfolio. Can Andrea use the EOQ model to determine how frequently Webster should liquidate part of its portfolio? Answer: The EOQ model can be applied directly to this problem. EOQ = ) P )( C ( ) S )( F ( 2 where F = $32, S = $12($100,000) = $1,200,000 worth of cash
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Unformatted text preview: needed each year, and the carrying cost per dollar per year is 7%, which is the opportunity cost for investing that dollar. EOQ = C * = 123 , 33 $ 07 . ) 000 , 200 , 1 )( 32 ( 2 ) P )( C ( ) S )( F ( 2 = = . So Webster should liquidate its portfolio in chunks of about $33,000. This translates to 1,200,000/33,123 = 36 times a year, or 52/36 = 1.44 or about every week and a half. Mini Case: 28- 12...
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