When Assessing Earnings Persistence It Is Important to Analyze Discretionary

question 53

Multiple Choice

When assessing earnings persistence it is important to analyze discretionary expenditures. Which of the following statements are correct?
I. Research and Development is generally considered a discretionary expenditure
II. Decreased discretionary expenditures should always be taken as a positive indicator that the company is getting costs under control
III. Advertising expenditures can be considered discretionary expenditures, which often have implications for future sales
IV. Absolute levels of discretionary expenditures are more important than the level of expenditures relative to sales

• A) I, II and III
• B) I, III and IV
• C) II, III and IV
• D) I and III

---

Definitions:

Available-for-Sale Investments

Securities that are not classified as held-to-maturity or trading securities, and can be sold in the future.

Market Value

The current market cost at which a service or asset is being bought or sold.

No Par Stock

Stock issued without a nominal or face value, where the value is determined by what investors are willing to pay for it.

Available-for-Sale Securities

Financial assets that a company intends to sell but not immediately, recognized on the balance sheet at fair value.