Determining the appropriate target cash balance involves assessing the trade-off between:

Question

Quizplus · Accepted Answer

Target cash balance is determined by assessing the benefit and cost of liquidity. Keeping excess cash on hand incurs opportunity costs, while having insufficient cash can lead to missed opportunities and financial distress. Thus, the appropriate target cash balance for a company requires finding a balance between the benefits of maintaining liquidity and the costs of holding cash.

Determining the Appropriate Target Cash Balance Involves Assessing the Trade-Off