Asked by Melody Martenson on May 06, 2024
Verified
Why is it important for firms to maintain a minimum cash balance when the cost of doing so is greater than the return generated by the funds held in reserve?
Cash Balance
The amount of cash in a company's accounts at any given time, important for ensuring liquidity and operational compatibility.
- Comprehend the concept and importance of maintaining a minimal cash balance for business operations.
Verified Answer
SJ
Samya JonesMay 13, 2024
Final Answer :
The primary reason for maintaining a minimum level of cash is that the future is uncertain. When an unexpected opportunity arises or an unexpected cost is incurred, the firm will have an increased ability to react to the situation. Firms cannot borrow money every time an unexpected event occurs.
Learning Objectives
- Comprehend the concept and importance of maintaining a minimal cash balance for business operations.
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