Question: The Seminole Company wishes to apply the Miller-Orr model to manage its cash investment. Seminole's management has collected the following estimates:
Cost per transaction = $200
Variance of daily cash flows = $10,000
Opportunity cost of cash, per day = 0.05%
Seminole management has figured, based on their experience dealing with the cash flows of the company, that there should be a cushion- a safety stock-of cash of $20,000. Calculate the following:
a. the lower limit
b. the return point
c. the upper limit