The Bulldog Company has cash needs of $5 million per month. If Bulldog needs more cash, it can sell marketable securities, incurring a fee of $300 for each transaction. If Bulldog leaves its funds in marketable securities, it expects to earn approximately 0.50% per month on their investment.
If Bulldog gets a cash infusion of $1 million each time it needs cash, what are the holding costs associated with its cash investment?
Solution
Holding cost = Amount / 2 * Monthly rate *………………………………
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