Financial ManagementMCQQuestion 13493 of 300
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Annual cash disbursement of a firm is ₹78,000,000. Transaction cost per marketable security sale is ₹780 and opportunity interest rate is 10% p.a. What is the optimal cash conversion size (C∗\displaystyle C^*)?

Select Your Answer (Keyboard: A, B, C, D)
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Correct Answer

✅ Option C — ₹1,103,087

All Options:

  • A₹953,087
  • B₹1,503,087
  • C₹1,103,087 ✓
  • D₹1,303,087

Detailed Solution & Explanation

Correct Answer: Option **C** (₹1,103,087) **Financial Management Derivation (Working Capital - Baumol Model of Cash Management):** C∗=2FTi=2×780×₹78,000,0000.10=₹1,103,087C^* = \displaystyle \sqrt{\frac{2FT}{i}} = \sqrt{2×780×₹78,000,0000.10\displaystyle \frac{2 \times 780 \times ₹78,000,000}{0.10}} = ₹1,103,087 Hence, Option C is the correct answer.

Key Concepts to Understand

Working Capital

The excess of current assets over current liabilities, representing the short-term liquidity available to a business for its day-to-day operations. Positive working capital indicates good short-term financial health.

More Questions from Financial Management

A company has sales of ₹50,00,000, variable costs of ₹30,00,000, fixed operating costs of ₹10,00,000, and 10% debentures of ₹20,00,000. Compute the Operating Leverage (DOL), Financial Leverage (DFL), and Combined Leverage (DCL).

2. What is the Cash Inflow after Taxes for the Year 1, Year 2 and Year 3 of the investment proposal ?

4. What is the Net Present Value of the investment proposal?

2. What would be the Market Price per Share (MPS) of the company if Price Earnings Ratio (PE ratio) in Plan-1 is 12 times and Plan-II is 15 times?

3. What would be the financial Break Even Point (BEP) in Plan-I and Plan-II?

7. Current Assets and Current Liabilities would be:

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