Question

According to the baumol's model of cash management, fixed costs include:

Answer 1

since,According to the baumol's model of cash management, fixed costs include:savings,salary and income tax price

Answer 2

Baumol's model of cash management, fixed costs includes placing Orders to Security Brokers or the payment of the orders.

Defintion of Baumol's Model of cash management;

Bauol's Model represents the management of surplus of funds through the stock supply quantities.

Features of Baumol's model;

• Baumol's model describes the amount of cash that minimizes into total transaction costs and alternative cost.
• It maintains the given level of cash that represents the similarities between an inventory management and cash management.
• There are two types of cash management in Baumol's model;

1. Opportunity cost
2. Transaction cost also called as conversion cost.

• The basic assumption includes the timing of cash flows ad the size with all the assurance.

Hence, the fixed cost in the model includes the transactions or the payments of the surplus funds.