Question: Assuming an annual opportunity cost of 2.5%, a fixed cost per securities transaction of $10, and total annual cash needs for the year of $200,000. Assume that your firm wants to use the Miller- Orr model to optimize its cash holdings and has decided that its Lower Control Limit is $2, 500.
a. Determine the firm's optimal cash position.
b. Determine the firm's Upper Control Limit.
c. Describe what should happen (including amounts) if the firm reaches the Upper Control Limit.
d. Describe what should happen (including amounts) if the firm reaches the Lower Control Limit.