Jordan Moore, the budget manager for the City of Henderson, has requested that you assist him with the management of the cities’ funds. Specifically, he wants you to calculate the two scenarios listed below based on the following information. This problem can be completed in a spreadsheet or in a word processing package. See Appendix 7B.
a. The city has total cash payments of $15 million (T) for a 6-month period. Assume that the payment over this period is steady. The cost per transaction is $65 (b), the interest rate is 3% for the period (i), and the cost per dollar of funds transferred is .05% (v).
Calculate the optimal initial cash balance and transfer size
Average cash balance
The number of transfers
The total cost of cash management
b. The city has total cash payments of $13 million (T) for a 6-month period. Assume that the payment over this period is steady. The cost per transaction is $55 (b), the interest rate is 5% for the period (i), and the cost per dollar of funds transferred is .04% (v).
Calculate the optimal initial cash balance and transfer size
Average cash balance
The number of transfers
The total cost of cash management