Which of the Following Is Not a Valid Reason for Holding

question 127

Multiple Choice

Which of the following is not a valid reason for holding cash?

• A) to meet transaction requirements
• B) to earn the highest return possible
• C) to satisfy emergency needs for funds
• D) to provide a compensating balance for a bank

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Definitions:

Pretax Debt Costs

The expenses related to debt before income taxes are applied, such as interest expenses.

Tax Rate

The percentage at which an individual or corporation is taxed by the government, which can vary based on income level, type of taxpayer, or type of income.

Debt-Equity Ratio

The debt-equity ratio is a measure of a company's financial leverage, indicating the ratio of its total debt to its shareholders' equity.

Unlevered Cost

A cost or rate of return analysis that does not include the impact of debt financing, reflecting the company's cost of capital without leverage.