PRC-3 · Chapter 4 · Question 38 of 65
A logistics firm uses a 3-month overdraft to purchase a fleet of heavy trucks that will take 8 years to generate enough revenue to pay for themselves. What dangerous financial situation has the firm created?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Asset-liability mismatch
Explanation
Funding long-term assets with short-term liabilities creates a severe asset-liability mismatch, exposing the firm to liquidity crises when the short-term debt is due.
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