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Baumol's Model Formula

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Cost of Providing a Service refers to the total expenditure required to maintain a certain level of service provision over a period of time. Check FAQs

C = \sqrt{\frac{2 \cdot b \cdot t}{R}}

C - Cost of Providing a Service?b - Cost of Conversion?t - Total Requirement of Cash?R - Interest Rate?

Baumol's Model Example

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Here is how the Baumol's Model equation looks like with Values.

Here is how the Baumol's Model equation looks like with Units.

Here is how the Baumol's Model equation looks like.

141.4214 = \sqrt{\frac{2 \cdot 20 \cdot 30}{0.06}}

141.4214 = \sqrt{\frac{2 \cdot 20 \cdot 30}{0.06}}

141.4214 = \sqrt{\frac{2 \cdot 20 \cdot 30}{0.06}}

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Baumol's Model Solution

Follow our step by step solution on how to calculate Baumol's Model?

FIRST Step Consider the formula

C = \sqrt{\frac{2 \cdot b \cdot t}{R}}

Next Step Substitute values of Variables

∴

C = \sqrt{\frac{2 \cdot 20 \cdot 30}{0.06}}

Next Step Prepare to Evaluate

∴

C = \sqrt{\frac{2 \cdot 20 \cdot 30}{0.06}}

Next Step Evaluate

∴

C = 141.42135623731

LAST Step Rounding Answer

∴

C = 141.4214

Baumol's Model Formula Elements

Variables

Functions

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.

Symbol: C

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Cost of Providing a Service

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.

Symbol: b

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Cost of Conversion

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.

Symbol: t

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Total Requirement of Cash

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.

Symbol: R

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Interest Rate

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.

Syntax: sqrt(Number)

Other formulas in Cash Management category

Go Cash Budget

CB = TR - TP

Go Miller Orr Model

Z = 3 \cdot {(\frac{3 \cdot b \cdot σ}{4 \cdot \frac{R}{360}})}^{\frac{1}{3}}

Go Cash Coverage

Cash cov = \frac{EBIT}{Int}

Go Cash Conversion Cycle

CCC = DIO + DSO - DPO

How to Evaluate Baumol's Model?

Baumol's Model evaluator uses Cost of Providing a Service = sqrt((2*Cost of Conversion*Total Requirement of Cash)/Interest Rate) to evaluate 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 evaluate Baumol's Model using this online evaluator? To use this online evaluator for Baumol's Model, enter Cost of Conversion (b), Total Requirement of Cash (t) & Interest Rate (R) and hit the calculate button.

FAQs on Baumol's Model

What is the formula to find Baumol's Model?

The formula of Baumol's Model is expressed as Cost of Providing a Service = sqrt((2*Cost of Conversion*Total Requirement of Cash)/Interest Rate). Here is an example- 141.4214 = sqrt((2*20*30)/0.06).

How to calculate Baumol's Model?

With Cost of Conversion (b), Total Requirement of Cash (t) & Interest Rate (R) we can find Baumol's Model using the formula - Cost of Providing a Service = sqrt((2*Cost of Conversion*Total Requirement of Cash)/Interest Rate). This formula also uses Square Root (sqrt) function(s).

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Baumol's Model Formula

Baumol's Model Example

Baumol's Model Solution

Baumol's Model Formula Elements

Other formulas in Cash Management category

How to Evaluate Baumol's Model?

FAQs on Baumol's Model

Variable Name