Response to the following problem:
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