Question

As transitory or value-irrelevant components become a larger part of a firm’s reported earnings, which of the following effects would you not expect to witness?

Multiple Choice

• Earnings are a less reliable indicator of the firm’s fundamental value.

• Reported earnings become a less reliable indicator of the company’s long-run sustainable cash flows.

• The quality of those reported earnings is eroded.

• The firm’s stock price rises in the year such components are reported proportionate to their impact on income.

Answer 1

Ans is

The firm’s stock price rises in the year such components are reported proportionate to their impact on income.

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