Presentation on theme: "1 PEMBELANJAAN PERUSAHAAN LECTURE 3a– CASH CONVERSION."— Presentation transcript:
1 PEMBELANJAAN PERUSAHAAN LECTURE 3a– CASH CONVERSION
PP/MB-IPB/10 2 Cash Conversion Models These models are used to help determine the optimal quantity of marketable securities to convert into cash when needed (and vice versa). The cash conversion quantity depends on: - the fixed cost of transferring funds between cash and marketable securities, - the rate of interest, - the firms demand for cash. Objective: to balance the costs and benefits of holding cash versus investing in marketable securities.
PP/MB-IPB/10 3 Cash Conversion Models The Baumol model is a simple approach that provides for cost-efficient cash balances by determining the optimal cash conversion quantity. The firm manages its cash inventory by calculating two costs: the cost of converting marketable securities into cash and vice versa, and the cost of converting marketable securities into cash and vice versa, and the cost of holding cash rather than marketable securities. the cost of holding cash rather than marketable securities. Baumol Model
PP/MB-IPB/10 4 Cash Conversion Models The Baumol model may be written as shown in Equation below: Baumol Model ECQ = Economic Conversion Quantity
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