Firms attempt to maintain minimum cash balances to meet short term working capital needs such as payroll. Any cash from operating and investing activities in excess of that required to maintain the firm's desired minimum cash balance may be used to repay any outstanding debt.

Question

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This statement is true. Firms do tend to maintain minimum cash balances to meet short term working capital needs like payroll. Any extra cash can be used to pay off outstanding debt.

Firms Attempt to Maintain Minimum Cash Balances to Meet Short