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Question

Miller-Orr Model deals with ________________.
  1. Optimum Cash Balance
  2. Optimum Finished Goods
  3. Optimum Receivables
  4. All of the above

A
Optimum Finished Goods
B
Optimum Receivables
C
Optimum Cash Balance
D
All of the above
Solution
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The Miller-Orr model of cash management is developed for businesses with uncertain cash inflows and outflows. This approach allows lower and upper limits of cash balance to be set and determine the return point (target cash balance). This is different from the Baumol-Tobin model, which is based on the assumption that the cash spending rate is constant.

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