Problem 4 (Determination of Optimal Average Cash Balance Using Baumol Model) Javpee Inc., has two dates when it receives its cash inflows (February 15 and August 15). On each of these dates, it...

Extracted text: Problem 4 (Determination of Optimal Average Cash Balance Using Baumol Model) Javpee Inc., has two dates when it receives its cash inflows (February 15 and August 15). On each of these dates, it expects to receive P30 million. Cash expenditure are expected to be steady throughout the subsequent 6-month period. Presently, the ROI in marketable securities is 8% per annum, and the cost of transfer from securities to cash isP125 each time a transfer occurs. Required: a. What is the optimal transfer size using the Baumol model? What is the average cash balance? b. What would be the answer to (a) if the ROI were 12% per annum and the transfer costs were P75? Why do they differ from those in (a)?