If Managers Were Given Freedom to Choose Which Expenses to Classify

question 1

Multiple Choice

If managers were given freedom to choose which expenses to classify as investments,which of the following is most accurate?

• A)Managers will have an incentive to classify all expenses as investments.
• B)Managers will have an incentive to classify no expenses as investments.
• C)Managers will not have an incentive either way with respect to classifying expenses as investments.
• D)Managers would most likely follow the rules established by GAAP,because they were formulated to be optimal for managers to follow.

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Definitions:

Relative Economic Conditions

Economic circumstances in one region or country as compared to another.

Long-Run Exposure

A type of currency risk faced by firms that operate internationally over an extended period.

Exchange Rate Risk

The potential for financial loss due to fluctuations in the exchange rate between two currencies.

Cross-Rate

An exchange rate between two currencies derived from their respective relations with a third currency.