he following data applies to a company. 1. The minimum cash balance is $8,000. 2. The variance of daily cash flows is 4,000,000, equivalent to a standard deviation of $2,000 per day. 3. The transaction cost for buying or selling securities is $50. The interest rate is 0.025 per cent per day. You are required to formulate a decision rule using the Miller-Orr model. A. What is the optimal cash return point? B.What is the upper cash limit?
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The following data applies to a company.
1. The minimum cash balance is $8,000.
2. The variance of daily cash flows is 4,000,000, equivalent to a standard deviation of $2,000 per day.
3. The transaction cost for buying or selling securities is $50. The interest rate is 0.025 per cent per day.
You are required to formulate a decision rule using the Miller-Orr model.
A. What is the optimal cash return point?
B.What is the upper cash limit?
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- 4. Calculate the Baumol Model and Total Cost for the optimal cash holding: Using the information show below. a. The fixed transaction cost per sale of security (F) $85 b. Total cash needed during period (TCN) $950,000 c. Per period opportunity cost (i) 6% a. Calculate Z the optimal dollar amount of securities that should be sold to replenish cash: b. Calculate the Total cost of the cash position:he conventional payback period ignores the time value of money, and this concerns Cold Goose’s CFO. He has now asked you to compute Sigma’s discounted payback period, assuming the company has a 10% cost of capital. Complete the following table and perform any necessary calculations. Round the discounted cash flow values to the nearest whole dollar, and the discounted payback period to two decimal places. For full credit, complete the entire table. (Note: If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Cash flow -$5,000,000 $2,000,000 $4,250,000 $1,750,000 Discounted cash flow Cumulative discounted cash flow Discounted payback period: years Which version of a project’s payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority? The discounted payback period The regular payback period One…Following is the information given: 1. Lower control limit is Rs. 2000, 2. Interest rate per day is 0.020%, 3. Variance of daily cash flows of Rs. 500000, 4. Switching costs per transaction is Rs. 30. Calculate spread, Upper limit and Return point according to Miller Orr Model of Cash Management. Differentiate between gross and net working capital. Give an example for each.
- K-Life financial services Limited uses risk-adjusted return on capital (RAROC) to measure performance on several aspects. In this regard, imagine that an investment officer wants to execute a transaction with the following characteristics: Probability of default (PD) = 30 basis points Loss given default (LGD) = 55% Exposure at default (EAD) = K 1.45 million Expected loss (EL) = K 2,750 This is a loan to a company in the Agro industrial. The firm’s economic capital (EC) model is based on the 99% confidence level, with an average standard deviation of 2.15%. The risk-free rate of return is 6%. Assume that the bank has set a RAROC hurdle rate of 15% and this transaction has a net profit of K10, 500. REQUIRED: Compute the K-life’s risk-adjusted rate of return on this transaction. Now assume that K-life could also have made a loan for the same amount to a firm in the service industry, and that the standard deviation for economic capital purposes in this case is 1.29%. Compute the bank’s…Builtrite has calculated the average cash flow to be $11,000 with a standard deviation of $4000. What is the probability of a cash flow being between $10,000 and $14,000? (Assume a normal distribution.) 12.93% 37.21 % 14,93% 17.47 %The conventional payback period ignores the time value of money, and this concerns Cute Camel’s CFO. He has now asked you to compute Delta’s discounted payback period, assuming the company has a 7% cost of capital. Complete the following table and perform any necessary calculations. Round the discounted cash flow values to the nearest whole dollar, and the discounted payback period to two decimal places. For full credit, complete the entire table. (Note: If your answer is negative, be sure to use a minus sign in your answer.) Year 0 Year 1 Year 2 Year 3 Cash flow -$5,000,000 $2,000,000 $4,250,000 $1,750,000 Discounted cash flow Cumulative discounted cash flow Discounted payback period: years
- The conventional payback period ignores the time value of money, and this concerns Cute Camel's CFO. He has now asked you to compute Sigma's discounted payback period, assuming the company has a 9% cost of capital. Complete the following table and perform any necessary calculations. Round the discounted cash flow values to the nearest whole dollar, and the discounted payback period to two decimal places. For full credit, complete the entire table. (Note: If your answer is negative, be sure to use a minus sign in your answer.) Cash flow Discounted cash flow Cumulative discounted cash flow Discounted payback period: S $ O The regular payback period O The discounted payback period Year 0 -$5,000,000 years $4,928,461 O $3,186,183 O $1,763,323 O $1,351,321 Year 1 $2,000,000 Year 2 $4,250,000 $ Which version of a project's payback period should the CFO use when evaluating Project Sigma, given its theoretical superiority? Year 3 $1,750,000 One theoretical disadvantage of both payback…First draw a cash flow diagram for the cash flow series shown below. Then write an expression (e.g., P= 500(P/A 5%, 3) + 100(P/G 5%, 3) + ...) for the present worth of the following cash flow series. You must use at least one uniform series factor, at least one gradient series factor, and at least one geometric series factor. i= 5% per period. ΕΟΥ 1 5 4 -3,000 -9,000 -9,300 |-9,600 |-9,900 | 7,000 5,000 6,000 7,200 2 3 7 9 10 Cash 8,640 | 10,000 Flow a) b) Draw the cash flow diagram for the above cash flow series. Write down the expression for the present worth of the above cash flow series.Solve for the unknown quantity in Parts (a) through (d) that makes the equivalent value of cash outflows equal to the equivalent value of the cash inflow, F. a. If F= $9,500, G = $550, and N=6, then i = ? b. If F = $9,500, G= $550, and i = 3% per period, then N = ? c. If G = $1,100, N = 12, and i =6% per period, then F= ? d. If F = $7,700, N= 6, and i = 6% per period, then G = ? Click the icon to view the accompanying cash-flow diagram. E Click the icon to view the interest and annuity table for discrete compounding when i = 3% per year. Click the icon to view the interest and annuity table for discrete compounding when i= 6% per year. a. The interest rate, i, is 10.5 %. (Round to one decimal place.) b. The number of years, N, is years. (Round to one decimal place.)
- Consider the following cash flows: Year Cash Flow 0 −$28,300 1 15,400 2 13,500 3 9,900 a. What is the profitability index for the cash flows if the relevant discount rate is 9 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) b. What is the profitability index if the discount rate is 14 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.) c. What is the profitability index if the discount rate is 25 percent? (Do not round intermediate calculations and round your answer to 3 decimal places, e.g., 32.161.)Consider a bank with the following balance sheet (M means million): (Image attached as Q3) If the interest rates go up by 1%, using the duration and convexity rule, determine the net worth of the bank and the equity to asset ratio. ALSO In above scenario, to maintain the equity to asset ratio at 40% which is required by the regulation, the bank decides to raise cash (zero duration and zero convexity) from the equity holders. How much cash does the bank need to raise?Consider a bank with the following balance sheet (M means million): (Image attached as Q3) If the interest rates go up by 1%, using the duration and convexity rule, determine the net worth of the bank and the equity to asset ratio. ALSO In above scenario, to maintain the equity to asset ratio at 40% which is required by the regulation, the bank decides to raise cash (zero duration and zero convexity) from the equity holders. How much cash does the bank need to raise? Attempted to create formula for first part - is it correct?