Asked by Jennifer Robert on Jul 14, 2024
Verified
The cost of borrowing and the cost of selling securities affect the target cash balance of a firm.
Target Cash Balance
A firm’s desired cash level as determined by the trade-off between carrying costs and shortage costs.
Cost of Borrowing
The total amount of money that a borrower pays to secure a loan, including interest, fees, and any other charges.
- Understand the factors that influence the target cash balance and the models' assumptions about cash flows and interest rates.
Verified Answer
TN
Trinh NguyenJul 18, 2024
Final Answer :
True
Explanation :
The cost of borrowing influences a firm's preference for maintaining a certain level of cash to avoid expensive short-term loans, while the cost of selling securities affects the firm's decision on liquidating investments for cash, both impacting the target cash balance.
Learning Objectives
- Understand the factors that influence the target cash balance and the models' assumptions about cash flows and interest rates.
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