One reason expansion into e-waste might worsen liquidity in the short term?

One reason expansion into e-waste might worsen liquidity in the short term?

• A. Immediate increase in cash from government grants.
• B. High upfront spending on machinery, buildings, and working capital before revenues grow.
• C. Immediate profits from sales.
• D. Sell-off of existing assets to raise cash.

Answer: (B)

The question tests how cash flow timing affects liquidity when a business expands. Expanding into e-waste typically requires large upfront outlays for equipment, facilities, and the working capital needed to run the new operation. These cash outflows occur before any revenues from the expansion start, so the company’s available cash declines in the short term. That immediate drain on cash makes it harder to meet short-term obligations, worsening liquidity until the new activities begin generating cash. If there were government grants, immediate profits, or the sale of existing assets, those would add cash in the short term and improve liquidity, not worsen it.

The question tests how cash flow timing affects liquidity when a business expands. Expanding into e-waste typically requires large upfront outlays for equipment, facilities, and the working capital needed to run the new operation. These cash outflows occur before any revenues from the expansion start, so the company’s available cash declines in the short term. That immediate drain on cash makes it harder to meet short-term obligations, worsening liquidity until the new activities begin generating cash.

If there were government grants, immediate profits, or the sale of existing assets, those would add cash in the short term and improve liquidity, not worsen it.