The size of cash balances e The optimal size of the firms cash balances depend upon The cost of keeping too much cash on han oi.e. the opportunity costs of holding cash The cost of not keeping enough cash on hand oi. e the trading costs associated with having too little cash The variability of cash flows McGraw-Hilylrwoin 18-3 Copyright@ 2001 by The McGraw-Hill Companies, Inc. All rightsMcGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. 18-3 The Size of Cash Balances ⚫ The optimal size of the firm’s cash balances depend upon: ◼The cost of keeping “too much” cash on hand. ◆i.e. the opportunity costs of holding cash ◼The cost of not keeping enough cash on hand. ◆i.e. the trading costs associated with having too little cash ◼The variability of cash flows