Which of the Following Is $\underline{not}$ A Finding or Conclusion of the Research Study by Ou

question 33

Multiple Choice

Which of the following is $\underline{not}$ a finding or conclusion of the research study by Ou and Penman that used traditional accounting measures to predict whether a company's income would increase or decrease?

• A)The researchers were unable to describe the following year earnings changes correctly in most cases.
• B)Markets are not as efficient as efficient-market advocates would like to believe.
• C)Better accounting standards might improve the predictive ability of accounting information.
• D)Fundamental analysis is still important for investment purposes.

Estimate the firm's value with and without leverage under given tax rates.

Understand the relationship between expected EBIT, cost of capital, and the firm's weighted average cost of capital (WACC).

Identify the implications of different debt-equity ratios on a firm's cost of capital.

Calculate the Degree of Financial Leverage (DFL) and interpret its implications for the firm.

---

Definitions:

Independence

A concept in probability and statistics indicating that two events or variables have no association or influence on each other.

Categorical Variables

Variables that represent categories and can take on a limited, and usually fixed, number of possible values.

Degrees Of Freedom

The number of independent values or quantities which can be assigned to a statistical distribution or in the calculation of a statistic, typically in the context of parameter estimation.

Chi-Square Distribution

A statistical distribution used to describe the distribution of a sum of the squares of independent random variables.