You are reviewing your targets for short-term cash reserves next year. You wish to carry at least twenty days of cash on hand. If annual budgeted cash expenses are $48Milion, what amount of short term reserves should be targeted?
To determine the amount of short-term reserves that should be targeted, we need to calculate 20 days' worth of cash expenses.
Step 1: Calculate the daily cash expenses
To find the daily cash expenses, divide the annual budgeted cash expenses by the total number of days in a year. Assuming a year has 365 days:
Daily cash expenses = Annual budgeted cash expenses / Total number of days in a year
Daily cash expenses = $48,000,000 / 365
Step 2: Calculate the targeted short-term reserves
Multiply the daily cash expenses by the desired number of days on hand (20).
Targeted short-term reserves = Daily cash expenses * Desired number of days on hand
Let's plug in the values:
Daily cash expenses = $48,000,000 / 365
Daily cash expenses ≈ $131,507.39 (rounded to the nearest cent)
Targeted short-term reserves = $131,507.39 * 20
Targeted short-term reserves ≈ $2,630,147.78 (rounded to the nearest cent)
Therefore, the amount of short-term reserves that should be targeted is approximately $2,630,147.78.