Excess cash held by a firm should be:

Question

Quizplus · Accepted Answer

Excess cash should be reinvested by the firm in projects offering rates of return higher than the cost of capital. This will ensure that the firm is using its resources efficiently and generating value for its shareholders. Simply reinvesting in projects with the highest rate of return may not necessarily be the best choice if these projects do not meet the firm's cost of capital requirements. Reinvesting in the financial markets may not be the best choice if the firm does not have a solid investment strategy or if the markets are volatile. Distributing excess cash to bondholders is not a viable option as bondholders do not have ownership rights in the firm and are not entitled to any extra payments.

Excess Cash Held by a Firm Should Be