Asked by Candace Stubblefield on Jul 22, 2024
Verified
Under the BAT model, a decrease in the total amount of new cash needed for transactions over the planning period will cause the optimal initial balance to decline.
BAT Model
The BAT Model, or Behaviorally Anchored Rating Scale, is a method used in performance management to rate and evaluate employees' behaviors against specific examples that are anchored to numerical ratings.
Optimal Initial Balance
The ideal starting amount of money in an investment or financial account, determined based on goals, risk tolerance, and other financial considerations.
- Evaluate the advantages and disadvantages of the BAT model for cash flow forecasting and effective cash utilization.
Verified Answer
KU
Keeping Up With KiJul 24, 2024
Final Answer :
True
Explanation :
Under the Baumol-Tobin (BAT) model, the optimal initial cash balance is determined by the trade-off between the transaction cost of converting securities to cash and the opportunity cost of holding cash. If the total amount of new cash needed for transactions decreases, the frequency of conversions from securities to cash will decrease, leading to a lower optimal initial balance.
Learning Objectives
- Evaluate the advantages and disadvantages of the BAT model for cash flow forecasting and effective cash utilization.