Asked by Santana Williams on Jun 25, 2024
Verified
Which of the following is true in the BAT model?
A) As the initial cash balance rises, opportunity costs fall.
B) For a given initial cash balance, the total cost of holding cash will rise with decreases in opportunity costs.
C) As average cash balances fall, opportunity costs rise.
D) For a given initial cash balance, the total cost of holding cash will rise with decreases in the fixed cost of making a securities trade.
E) A drawback to the BAT model is that it assumes steady, certain cash outflows.
Initial Cash Balance
The amount of cash a company has at the beginning of a financial period.
- Comprehend the BAT and Miller-Orr models for managing cash balances.
Verified Answer
MB
Michael BeasleyJul 01, 2024
Final Answer :
E
Explanation :
The Baumol-Tobin (BAT) model, also known as the Baumol model of cash management, indeed assumes steady, certain cash outflows. This simplification allows for the prediction of optimal cash levels but does not account for the variability in cash needs that most businesses experience, making it a notable drawback of the model.
Learning Objectives
- Comprehend the BAT and Miller-Orr models for managing cash balances.