The more difficult it is to estimate a firm's cash flow needs,the greater the need to carry higher precautionary balances.

Question

Quizplus · Accepted Answer

When it is challenging to estimate a firm's cash flow requirements, there is a higher risk of unexpected cash outflows or insufficient cash reserves. Thus, carrying a higher precautionary balance or cash reserve is essential to cover any unforeseen cash needs.

The More Difficult It Is to Estimate a Firm's Cash