Peterson Products uses a zero-balance account for cash management purposes. McLeod Enterprises does not. If the firms are otherwise identical, one would expect McLeod to maintain a larger total cash safety stock than Peterson.

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Peterson Products, by using a zero-balance account, effectively minimizes idle cash balances by automatically transferring funds to meet disbursements, thus requiring a smaller cash safety stock. McLeod Enterprises, not utilizing such a system, would likely maintain a larger total cash safety stock to cover unexpected transactions.

Peterson Products Uses a Zero-Balance Account for Cash Management Purposes