Ignoring the risk of theft,cash balances cannot spoil,yet managers are concerned with carrying costs.Why?

Question

Quizplus · Accepted Answer

Cash balances may not spoil, but they are idle and do not earn any returns. This means that every dollar sitting idle in cash could have been used to earn a return in another investment. As a result, managers are concerned with carrying costs, which include the opportunity cost of holding cash balances. Higher balances may require additional supervisory costs, but this is not the primary concern for most managers. Theft, while a real risk, is not relevant to this question since it is explicitly stated that the risk of theft is being ignored.

Ignoring the Risk of Theft,cash Balances Cannot Spoil,yet Managers Are