Asked by Khubaib Ur Rahman on Jul 18, 2024
Verified
In regards to the BAT and Miller-Orr cash management models, the lower the uncertainty of cash flows, the higher the target cash balance.
Miller-Orr Model
A model used in financial management to determine the optimal level for cash balances under uncertainty.
Uncertainty
The lack of predictability or certainty about outcomes, often considered in the context of investment or economic forecasts.
Cash Flows
Incoming and outgoing cash movements in a business or project, crucial for understanding its liquidity and operational efficiency.
- Acquire knowledge on the functions and merits of the BAT and Miller-Orr models for cash balance management.
Verified Answer
SD
sheila dlaminiJul 20, 2024
Final Answer :
False
Explanation :
Both the BAT (Baumol-Tobin model) and Miller-Orr models suggest that with lower uncertainty in cash flows, a company can maintain a lower target cash balance because it can predict its cash needs more accurately and thus minimize holding costs.
Learning Objectives
- Acquire knowledge on the functions and merits of the BAT and Miller-Orr models for cash balance management.