Which of the following statements is false?
A) A firm must balance the tax costs of holding cash with the potential benefits of having to raise external funds in the future.
B) Paying out excess cash through dividends or share repurchases can boost the stock price by reducing managers' ability and temptation to waste resources.
C) If there is a reasonable likelihood that future earnings will be insufficient to fund future positive-NPV investment opportunities, a firm may start accumulating cash to make up the difference.
D) According to the managerial entrenchment theory of payout policy, managers pay out cash only when pressured to do so by the firm's investors.

Question

Quizplus · Accepted Answer

A firm does not need to balance the tax costs of holding cash with the potential benefits of having to raise external funds in the future; rather, it balances the opportunity cost of holding cash against the benefits of liquidity.

Which of the Following Statements Is False