Solved: Target level and upper limit for a cash management, Finance Basics

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Target level and upper limit for a cash management

Problem:

Wilson Products Ltd estimates that the standard deviation of its daily change in cash balance is $30000. The fixed cost of each withdrawal and injection of cash is $10 and the daily management yield on its investment is 0.0006. Wilson does not operate on an overdraft.

Calculate the target level and upper limit for a cash management approach that uses the Miller and Orr model. What problems do you foresee if approach is implemented?

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Finance Basics: Target level and upper limit for a cash management

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