If There Are Large Fluctuations in a Firm's Cash Flows

question 12

True/False

If there are large fluctuations in a firm's cash flows, or if there are large costs associated with selling securities, then the firm should hold relatively small average cash balances.

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Definitions:

Timely Basis

The practice of completing or delivering work within an agreed or expected period.

Price-Earnings Ratio

A valuation metric for stocks, calculated by dividing the market price per share by the earnings per share (EPS).

Investors' Expectations

The anticipations or beliefs that investors hold regarding future performance, earnings, and growth of a company or market.

Cost Basis of Accounting

An accounting method where expenses and income are recorded when they are incurred or earned, regardless of when the cash transactions occur.