Posted: February 15th, 2016

It projects that over the next year its cash outflows will exceed its cash inflows by $345,500 per month.

A company is currently holding 0,000 in cash. It projects that over the next year its cash outflows will exceed its cash inflows by $345,500 per month. Each time securities are bought or sold through a broker, the company pays a fee of
$500. The annual interest rate on money-market securities is 7 percent.

a. How much cash should be retained and how much should be used to increase the company’s holdings of marketable securities?

b. After the initial investment of excess cash, how many times during the next 12 months will securities be sold?