Using simulations, a firm can determine the amount of financing needed to protect it adequately against a cash shortage.

Question

Quizplus · Accepted Answer

Simulations can help a firm to forecast its future cash flows under different scenarios and assess the probability and severity of cash shortfalls. Based on this information, the firm can determine the appropriate amount and type of financing needed to cover its cash needs and minimize the risk of financial distress or insolvency. Simulations can also help the firm to evaluate the effectiveness of different financing strategies and contingency plans, and identify opportunities for improving its cash management practices.

Using Simulations, a Firm Can Determine the Amount of Financing