Excess cash is an asset that has a(n) ________ due to lost earning power for the company.
A) opportunity cost
B) cash cost
C) sunk cost
D) erosion cost

Question

Quizplus · Accepted Answer

Excess cash represents a missed opportunity for the company to invest that cash in income-generating projects. Therefore, the cost associated with holding excess cash is known as an opportunity cost. Choice B, cash cost, is not accurate because holding cash itself does not incur any costs. Choice C, sunk cost, refers to a cost that has already been incurred and cannot be recovered, which does not apply to excess cash. Similarly, choice D, erosion cost, is not a relevant concept in this context.

Excess Cash Is an Asset That Has A(n) ________ Due