The treasury department of ABC limited has asked you to help determine the target cash balance based on the following data. You have been informed that the company meets its cash requirements through and sell of marketable securities. Every time it engages in buying or selling, it incurs sh. 2, 500. In a given period, based on past experience, the standard deviation of daily cash usage is sh.1.5 Million. On average, return on treasury bills is estimated at 8 percent per annum. At any given time, cash reserves should not fall below Sh. 500,000, the minimum cash balance.
(i) Briefly discuss two models used for determining target cash balance
(ii) Compute the target ash balance for ABC Limited
(iii) Compute the average Cash Balance
(iv) Determine an estimate of the amount to be invested in treasury bills at any given time