A Transshipment Model for Cash Management Decisions.
CARNEGIE-MELLON UNIV PITTSBURGH PA MANAGEMENT SCIENCES RESEARCH GROUP
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The cash management problem is concerned with optimally financing net cash outflows and investing net inflows of a firm while simultaneously determining payment schedules for incurred liabilities. The problem is formulated as a transshipment model to minimize the total cost of allocating sources of funds to different uses while retaining the possibility of transferring cash between sources. A numerical example is formulated using this model and its optimal solution is shown to be essentially the same as that of a linear programming formulation proposed by Orgler. Extensions of the methodology for examining the effects of different minimum cash balance requirements and for incorporating other institutional constraints are also discussed.
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