ACCA · Question 16.4 · Working Capital Management
Section B - Case 1: Verdant Yields Co
Scenario: Verdant Yields Co is an organic avocado exporter. The business is highly seasonal. Annual credit sales are $18,250,000. The current trade receivables balance is $3,000,000. Assume a 365-day year.
Question 4: To manage its seasonal cash balances, Verdant Yields uses the Baumol cash management model.
Which of the following is a fundamental assumption of the Baumol model?
Answer options:
Cash is used at a constant and predictable rate over time.
Cash flows are random and unpredictable.
The cost of converting marketable securities to cash fluctuates daily.
The company maintains a buffer inventory of cash to prevent stock-outs.
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