ACCA FM · Chapter 5 · Question 3 of 10
Using the Miller-Orr model, a company has set a lower cash limit of $10,000 and calculated a spread of $36,000. What is the return point?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $22,000
Explanation
Return point = lower limit + one third of the spread = $10,000 + $36,000/3 = $22,000. The upper limit would be $10,000 + $36,000 = $46,000. Cash is restored to the return point whenever it reaches either limit.
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