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

Question

Quizplus · Accepted Answer

Determining the appropriate target cash balance involves assessing the trade-off between the benefit and cost of liquidity. Maintaining a higher cash balance provides liquidity and ensures that the company has sufficient funds to meet its daily operating needs, while a lower cash balance reduces the opportunity cost of holding cash and puts the funds to better use. Balancing these benefits and costs helps to determine the right target cash balance. Therefore, option B is the correct answer.

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