PRC-3 · Chapter 4 · Question 10 of 65
A manufacturing firm takes out a 6-month bank loan to purchase heavy machinery that will take 5 years to generate enough cash to pay for itself. What financial risk is the firm creating?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Asset-liability mismatch
Explanation
Funding long-term assets with short-term liabilities creates an asset-liability mismatch, leading to a high risk of default when the loan comes due.
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