Skip to content

CA Intermediate · Financial Management and Strategic Management · Treasury and Cash Management

Kaveri Ltd uses the Miller-Orr model. Minimum cash balance is Rs 50,000, the spread is Rs 90,000, and the return point is calculated as lower limit plus one-third of the spread. What are the upper limit and the return point?

The upper limit is Rs 1,40,000 (lower limit Rs 50,000 plus spread Rs 90,000) and the return point is Rs 80,000 (lower limit plus one-third of the spread, i.e. Rs 30,000). Adding two-thirds of the spread would wrongly give Rs 1,10,000.

  1. AUpper limit Rs 1,40,000; return point Rs 80,000Correct
  2. BUpper limit Rs 1,40,000; return point Rs 1,10,000
  3. CUpper limit Rs 90,000; return point Rs 80,000
  4. DUpper limit Rs 1,40,000; return point Rs 95,000

Explanation

Upper limit = lower limit + spread = 50,000 + 90,000 = Rs 1,40,000. Return point = 50,000 + 90,000/3 = 50,000 + 30,000 = Rs 80,000. Rs 1,10,000 wrongly adds two-thirds of the spread.

Did you get it right without looking?

One question tells you little. A timed set on Treasury and Cash Management shows your real accuracy, how long you take and where you lose marks.

Practise Treasury and Cash ManagementFree diagnostic mock

More Treasury and Cash Management questions