As Transitory or Value-Irrelevant Components Become a Larger Part of a Firm's

question 21

Multiple Choice

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?

• A)The quality of those reported earnings is eroded.
• B)The firm's stock price rises in the year such components are reported proportionate to their impact on income.
• C)Reported earnings become a less reliable indicator of the company's long-run sustainable cash flows.
• D)Earnings are a less reliable indicator of the firm's fundamental value.

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