If a ﬁrm has achieved its target cash balance the net present value is:

Question

Quizplus · Accepted Answer

Achieving a target cash balance means the firm has optimized its cash holdings to balance the costs of holding too much cash (opportunity cost of not investing the cash for higher returns) against the costs of holding too little (such as the costs of potential liquidity issues). Therefore, the net present value of reaching this balance would be zero, as it implies the firm is neither gaining nor losing value from its cash management strategy at that point.

If a ﬁRm Has Achieved Its Target Cash Balance the Net