What are opportunity costs in the context of maintaining cash balances?
A)Opportunity costs in this context are equal to the amount that a firm maintains in cash balances.
B)Opportunity costs in this context reflect the costs to a firm of monitoring its cash balances and ensuring that its cash balances are sufficient.
C)Opportunity costs in this context are the value of the lost opportunities that could not be pursued because a firm's money was being used to maintain cash balances.
D)Opportunity costs in this context are equal to the firm's working capital.

Question

Quizplus · Accepted Answer

Opportunity costs in the context of maintaining cash balances refer to the value of the lost opportunities that could not be pursued because the firm's money was being used to maintain cash balances. This could include investments or projects that could have generated higher returns if the cash was invested elsewhere. Maintaining cash balances has an opportunity cost because it ties up funds that could have been used for other investments, and as such, it is important for firms to find a balance between having sufficient cash reserves while also investing surplus funds for growth and profitability. Options A, B, and D are not accurate representations of opportunity costs in this context.

What Are Opportunity Costs in the Context of Maintaining Cash