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 dimpy.handa November 1st, 2010 06:21 PM

Baumol's model of cash mgt

Baumol model of cash management helps in determining a firm's optimum cash balance under certainty. It is extensively used and highly useful for the purpose of cash management. As per the model, cash and inventory management problems are one and the same. State out its assumption.

 Paramjeet_1988 November 1st, 2010 10:14 PM

Re: Baumol's model of cash mgt

Some of the assumption for Baumol model of cash management are:-
The interest rate or opportunity cost should remain the same.
Company should be able to predict her cost per period correctly.
Company should have continuous source of the money.
Transaction cost should remain the same for the given period.

 vardhanvishnug November 7th, 2010 04:17 PM

Re: Baumol's model of cash mgt

The particular company should be able to change the securities that they own into cash, keeping the cost of transaction the same. Under normal circumstances, all such deals have variable costs and fixed costs.
The company is capable of predicting its cash necessities. They should be able to do this with a level of certainty. The company should also get a fixed amount of money. They should be getting this money at regular intervals.
The company is aware of the opportunity cost required for holding cash. It should stay the same for a considerable length of time.

 Business-education June 28th, 2015 01:59 AM

Re: Baumol's model of cash mgt

Equational Representations in Baumol Model of Cash Management:

Holding Cost = k(C/2)
Transaction Cost = c(T/C)
Total Cost = k(C/2) + c(T/C)

Where T is the total fund requirement, C is the cash balance, k is the opportunity cost & c is the cost per transaction.

 rosemarry2 April 21st, 2016 04:43 PM

Re: Baumol's model of cash mgt

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 Originally Posted by dimpy.handa (Post 427369) Baumol model of cash management helps in determining a firm's optimum cash balance under certainty. It is extensively used and highly useful for the purpose of cash management. As per the model, cash and inventory management problems are one and the same. State out its assumption.
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