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Flit Co
Flit Co
Cash Receipt:
Credit Sales(W1) 960,000 1,000,000 1,092,000
Long Term loan 300,000
TOTAL RECEIPT 960,000 1,000,000 1,392,000
Cash Payment:
Purchases(W1) 500,000 520,000 560,000
Variable overhead and wages 130,000 140,000 150,000
Purchase of NCA 400,000
TOTAL EXPENSES 630,000 660,000 1,110,000
Cash Surplus/Deficit 330,000 340,000 282,000
Opening Balance 40,000 370,000 710,000
Closing Balance 370,000 710,000 992,000
Working 1:
Sales (1 month credit period)
December 960,000
January 1,000,000
February 1,092,000
© Risk
Since Flit Co only have short term cash surplus during the month,the company should prevent itself from invest in t
Investing in the stock market is a high risk and not suitable for Flit Co
Profitability
The company may get higher profit when invest in the stock market,since it is a high risk investment with a high ret
In conclusion,the company should prevent itself from invest in stock market because it is too risky for the company
(d) Introduction
Baumol Model is one type of model that been designed to find the quantity of cash need to be hold by the compan
Quantity.It is based on the idea that deciding an optimum cash balances is like deciding an optimum inventory leve
is steadily consumed over time.
Component of costs
There are several costs that need to be calculated.There is two separation of the cost,which is the variable and fixe
Model has the fixedcost which is the interest on short term financial securities while the variable cost is the cost of
in the form of cash.
Spread 13,757
Upper Limit 21,257
Return Point 12,086
According to the Miller-Orr model,when the cash reaches the upper limit which is $21257,the company will buy sec
$9171 to make the cash balance return to the return point which is the normal level.In addition,when the cash reac
lower limit which is $7,500,the company will take an action which is they will sell $4586 of marketable securities to
the return point which is $8142.
uld prevent itself from invest in the unliquid investment.