Baumol's Model Calculator

✖Cost of Conversion is the sum of direct labor and manufacturing overhead costs incurred to turn raw materials into a finished product.ⓘ Cost of Conversion [b]			+10% -10%
✖Total Requirement of Cash is the total amount of funds that a buyer must deliver to close on a mortgage or to finalize a refinance of an existing property.ⓘ Total Requirement of Cash [t]			+10% -10%
✖Interest Rate is the amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets.ⓘ Interest Rate [R]			+10% -10%

✖Cost of Providing a Service refers to the total expenditure required to maintain a certain level of service provision over a period of time.ⓘ Baumol's Model [C]

⎘ Copy

👎

Formula

✖

Baumol's Model

Formula

`"C" = sqrt((2*"b"*"t")/"R")`

Example

`"141.4214"=sqrt((2*"20"*"30")/"0.06")`

Calculator

LaTeX

Reset

👍

Download Cash Management Formulas PDF PDF Image

Baumol's Model Solution

STEP 0: Pre-Calculation Summary

Formula Used

Cost of Providing a Service = sqrt((2*Cost of Conversion*Total Requirement of Cash)/Interest Rate)
C = sqrt((2*b*t)/R)
This formula uses 1 Functions, 4 Variables

Functions Used

sqrt - A square root function is a function that takes a non-negative number as an input and returns the square root of the given input number., sqrt(Number)

Variables Used

Cost of Providing a Service - Cost of Providing a Service refers to the total expenditure required to maintain a certain level of service provision over a period of time.
Cost of Conversion - Cost of Conversion is the sum of direct labor and manufacturing overhead costs incurred to turn raw materials into a finished product.
Total Requirement of Cash - Total Requirement of Cash is the total amount of funds that a buyer must deliver to close on a mortgage or to finalize a refinance of an existing property.
Interest Rate - Interest Rate is the amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets.

STEP 1: Convert Input(s) to Base Unit

Cost of Conversion: 20 --> No Conversion Required
Total Requirement of Cash: 30 --> No Conversion Required
Interest Rate: 0.06 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

C = sqrt((2*b*t)/R) --> sqrt((2*20*30)/0.06)

Evaluating ... ...

C = 141.42135623731

STEP 3: Convert Result to Output's Unit

141.42135623731 --> No Conversion Required

FINAL ANSWER

141.42135623731 ≈ 141.4214 <-- Cost of Providing a Service

(Calculation completed in 00.004 seconds)

You are here -

Home » Financial » Financial Accounting » Cash Management » Baumol's Model

Credits

Created by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

Vishnu K has created this Calculator and 200+ more calculators!

Verified by Nayana Phulphagar

Institute of Chartered and Financial Analysts of India National college (ICFAI National College), HUBLI

Nayana Phulphagar has verified this Calculator and 1400+ more calculators!

< 9 Cash Management Calculators

Merton Model

Go Distance to the Default = ln(Market Value of Company Assets/Market Value of Company Debt)+((Risk Free Interest Rate+(Volatility of Company Asset Value)^2/2)*Time to Maturity)/(Volatility of Company Asset Value*sqrt(Time to Maturity))

Baumol's Model

Go Cost of Providing a Service = sqrt((2*Cost of Conversion*Total Requirement of Cash)/Interest Rate)

Cash Conversion Cycle

Go Cash Conversion Cycle = Days Inventory Outstanding+Days Sales Outstanding-Days Payables Outstanding

Miller Orr Model

Go Miller Orr Model = 3*((3*Cost of Conversion*Variance)/(4*Interest Rate/360))^(1/3)

Cash Surrender Value

Go Cash Surrender Value = mod(Enhanced Accumulated Value,Surrender Charges)

Cash Coverage

Go Cash Coverage = Earnings before Interest and Taxes/Interest Expense

Cash Burn Rate

Go Net Burn = Total Monthly Cash Sales-Total Monthly Cash Expenses

Implied Cash Runway

Go Implied Cash Runway = Cash Balance/Net Burn

Cash Budget

Go Cash Budget = Total Receipts-Total Payments

Baumol's Model Formula

Cost of Providing a Service = sqrt((2*Cost of Conversion*Total Requirement of Cash)/Interest Rate)
C = sqrt((2*b*t)/R)

Baumol Model

Baumol developed a model which is usually used in inventory management and cash management. It trade off between opportunity cost or carrying cost or holding cost and the transaction cost. The firm attempts to minimize the sum of the holding cash and the cost of converting marketable securities to cash.

How to Calculate Baumol's Model?

Baumol's Model calculator uses Cost of Providing a Service = sqrt((2*Cost of Conversion*Total Requirement of Cash)/Interest Rate) to calculate the Cost of Providing a Service, The Baumol's Model formula is defined as a model which provides for cost efficient transactional balances and assumes that the demand for cash can be predicted with certainty. It determines the optimal conversion size. Cost of Providing a Service is denoted by C symbol.

How to calculate Baumol's Model using this online calculator? To use this online calculator for Baumol's Model, enter Cost of Conversion (b), Total Requirement of Cash (t) & Interest Rate (R) and hit the calculate button. Here is how the Baumol's Model calculation can be explained with given input values -> 141.4214 = sqrt((2*20*30)/0.06).

FAQ

What is Baumol's Model?

The Baumol's Model formula is defined as a model which provides for cost efficient transactional balances and assumes that the demand for cash can be predicted with certainty. It determines the optimal conversion size and is represented as C = sqrt((2*b*t)/R) or Cost of Providing a Service = sqrt((2*Cost of Conversion*Total Requirement of Cash)/Interest Rate). Cost of Conversion is the sum of direct labor and manufacturing overhead costs incurred to turn raw materials into a finished product, Total Requirement of Cash is the total amount of funds that a buyer must deliver to close on a mortgage or to finalize a refinance of an existing property & Interest Rate is the amount charged, expressed as a percentage of the principal, by a lender to a borrower for the use of assets.

How to calculate Baumol's Model?

The Baumol's Model formula is defined as a model which provides for cost efficient transactional balances and assumes that the demand for cash can be predicted with certainty. It determines the optimal conversion size is calculated using Cost of Providing a Service = sqrt((2*Cost of Conversion*Total Requirement of Cash)/Interest Rate). To calculate Baumol's Model, you need Cost of Conversion (b), Total Requirement of Cash (t) & Interest Rate (R). With our tool, you need to enter the respective value for Cost of Conversion, Total Requirement of Cash & Interest Rate and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

Home

FREE PDFs

🔍 Search