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