The Target Cash Balance Is Defined as the Cash Level

question 2

Multiple Choice

The target cash balance is defined as the cash level that:

• A) Equals the average transaction needs of the firm.
• B) Equals the average transaction, precaution, and compensating balance needs of a firm.
• C) Maximizes the disbursement float and minimizes the collection float.
• D) Eliminates any float caused by availability delays.
• E) Equalizes the opportunity costs and the trading costs of holding cash.

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Definitions:

Interest Rate

The amount charged by a lender to a borrower for the use of assets, expressed as a percentage of the principal.

Capital

Financial assets or the financial value of assets, such as cash and goods, used by a business to produce goods or services and create wealth.

Future Benefits

Expected advantages or gains in the future, often considered in decision-making processes or investment analysis.

Retained Earnings

Profits that a company keeps after dividends have been paid out to shareholders, used for reinvestment in the business or to pay down debt.