A Firm with Unpredictable Cash Flows Is Trying to Set

question 119

Multiple Choice

A firm with unpredictable cash flows is trying to set upper and lower limits for cash balances.Which of the following factors will result in upper and lower limits being closer to each other?

• A) Variance of the cash flows is low.
• B) Cost of trading securities is high.
• C) Interest rate is low.
• D) Current cash balance is low.

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Definitions:

Units

Basic measures or quantities, in specific dimensions, used to determine size, quantity, or degree in various contexts.

Slope

The measure of the steepness or incline of a line on a graph, typically defined as the ratio of the rise over the run between two points.

Vertical Change

The alteration in the y-value or vertical position in a graph, often used in economic models to describe changes in price or quantity.

Seasonally Adjusted

A statistical technique that removes the influences of predictable seasonal patterns to show non-seasonal trends.