Question (2) In which scenario would the tenor of assets and liabilities be mismatched? A line of credit is set up to finance accounts receivable. Short-term liabilities finance current assets. Long-term loan used to finance acquisition of equipment. Inventory is financed by the proceeds of a new long-term loan.
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A mismatch occurs when the timing of asset realization (when the asset is converted to cash) doesn't align with the timing of liability repayment. Show more…
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investment in current assets must be financed. there are three alternative approaches for financing current assets. the a self-liqudity approach is a financing policy that correspond with the maturities of assets and liabilities. the represents a financing policy an financing policy is one in which a firm finances some of its permanent asset with short-term debt. a financing approach means that a firm uses long-term capital to finance all permanent current assets and to meet some of the seasonal needs with this approach the firm will use a small amount of short-term credit to meet its peak requirements, but it also meets part of its seasonal needs by starting liquidity in the form of securities
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