Posted: October 13th, 2016

Assuming a lower limit of $1,000,000, a transaction fee of $200, and a 5 percent annual interest rate, use the Miller-Orr model to determine the upper limit and the return point of the cash balance.

Please complete the following questions.
Use SMA (i.e., average the three provided years) as the forecasting technique in question #1. For question #3, use the cash balance and the Miller-Orr Model to make a recommendation that states either: 1) how much cash should be invested, 2) no action is necessary, or 3) how much cash is needed for replenishment.
Complete the calculations in Excel and then summarize your answer to each question in 1-2 sentences.

Questions
1.Create a cash budget for the next year. Use the proper forecasting techniques (from Chapter 1) and defend your reasoning for your choice of technique.
2. Assuming a lower limit of $1,000,000, a transaction fee of $200, and a 5 percent annual interest rate, use the Miller-Orr model to determine the upper limit and the return point of the cash balance.
3. Do you see any investment opportunities for the foundation’s cash? If yes, develop an investment strategy for the foundation.

Cash management in bridgetown
You are a financial analyst in the Bridgetown Foundation—a public service agency in Chicago that provides specialized mental care services to the poor. The foundation’s financial resources are mainly from various state and federal grants and business or individual donations. In a recent financial audit, an independent auditor suggested the foundation explore the possibility of investing in the market as an additional revenue source. You are assigned the responsibility of analyzing the foundation’s cash flows to determine whether such a possibility exists and, if it does, how much the founda- tion should invest and what the investment strategy should be. You pull out the cash flow information for the last three years as shown in Table 8.7.
Table:
Createacashbudgetforthenextyear.Usetheproperforecastingtechniques (from Chapter 1) and defend your reasoning for your choice of technique.
2. Assuming a lower limit of $1,000,000, a transaction fee of $200, and a 5 percent annual interest rate, use the Miller-Orr model to determine the upper limit and the return point of the cash balance.
3. Do you see any investment opportunities for the foundation’s cash? If yes, develop an investment strategy for the foundation.