Once each year, C Gordon Inc. receives a $2 million payment. Of this amount, $700,000 is needed for cash payments made during the next year.

Once each year, C Gordon Inc. receives a $2 million payment. Of this amount, $700,000 is needed for cash payments made during the next year. Each time Smith deposits money in its account, a charge of $3.00 is assessed to cover clerical costs. If Smith can hold marketable securities which yield 5 percent, and then convert these securities to cash at a cost of only the $3 deposit charge, what is the total cost for one year of holding the minimum cost cash balance according to the Baumol model?

a. $ 187

b.$ 374

c.$ 458

d.$3,741

e. $7,483