Which of the following is true regarding float costs and the size of the optimal cash balance held by a firm?
A) Float costs impact the optimal cash balance as determined by the BAT model only.
B) The higher the cash balance, the lower the float cost.
C) The lower the cash balance the lower the float cost.
D) Float costs have no impact on the size of the optimal cash balance.
E) Float costs increase the variance of cash flows per period, and thus the optimal cash balance.
Correct Answer:
Verified
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