Which of the Following Is True Regarding the Opportunity Costs

question 308

Multiple Choice

Which of the following is true regarding the opportunity costs of holding cash and the size of the cash balance held by a firm?

• A) There is no relationship between cash balances and opportunity costs.
• B) The higher the cash balance, the higher the opportunity cost.
• C) Opportunity costs are minimized at the optimal cash balance.
• D) If a firm can reduce its collection float, opportunity costs will fall and the optimal cash balance for the firm will be increased.
• E) If a firm can reduce its collection float, opportunity costs will rise and the optimal cash balance for the firm will be decreased.

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Definitions:

Price/Earnings Ratio

A valuation measure comparing the current share price of a company to its per-share earnings, often used to assess if a stock is over or undervalued.

Cash Flow Per Share

A measure of a firm's financial flexibility, calculated as operating cash flow divided by the number of outstanding shares.

Prohibited

Actions or activities that are not permitted or allowed by law, regulation, or policy.

Basic Earnings

Earnings calculated by dividing the net income by the total number of outstanding shares, showing the profit earned per share.