Asked by Deangelo Johnson on Jul 14, 2024
Verified
The firm's desired cash level as determined by the tradeoff between carrying costs and shortage costs is called its _____________.
A) Target cash balance.
B) Adjustment costs.
C) Variable costs.
D) Total costs.
E) Compensating balance.
Target Cash Balance
The optimal amount of cash that a company aims to hold for operational and precautionary purposes.
Carrying Costs
Expenses associated with holding or carrying inventory, including storage, insurance, taxes, and opportunity costs.
Shortage Costs
Costs associated with the unavailability of inventory or goods, leading to lost sales, backorders, or production delays.
- Distinguish between various motives for holding cash and how they influence cash management policies.
Verified Answer
MD
Moneek DunkleyJul 21, 2024
Final Answer :
A
Explanation :
The firm's desired cash level, determined by balancing carrying costs (the costs of holding cash) and shortage costs (the costs associated with running out of cash), is referred to as its target cash balance.
Learning Objectives
- Distinguish between various motives for holding cash and how they influence cash management policies.