New Labs Just Announced That It Has Received a Patent

question 49

Multiple Choice

New Labs just announced that it has received a patent for a product that will eliminate all flu viruses.This news is totally unexpected and viewed as a major medical advancement.Which one of the following reactions to this announcement indicates the market for New Labs stock is efficient?

• A)The price of New Labs stock remains unchanged.
• B)The price of New Labs stock increases rapidly and then settles back to its pre-announcement level.
• C)The price of New Labs stock increases rapidly to a higher price and then remains at that price.
• D)All stocks quickly increase in value and then all but New Labs stock fall back to their original values.
• E)The value of all stocks suddenly increase and then level off at their higher values.

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Definitions:

Cost Flow Assumption

An accounting method used to value inventory and determine the cost of goods sold, such as FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).

Specific Identification

Specific identification is an inventory valuation method that tracks the cost of individual items in inventory and matches those costs with the items' actual sale.

Inventory System

A method for tracking the quantities, locations, and statuses of products a company has in stock, both for sales and production purposes.

Computerized

Systems or processes that are performed or managed by computers, typically involving automation of manual tasks.