Why does income smoothing generally lead to a higher share value? a. It reduces the perceived risk of the company b. It leads to higher perceived income c. It is perceived as increasing the chance of insolvency d. None of the above. Research into income smoothing has concluded that

Why does income smoothing generally lead to a higher share value? a. It reduces the perceived risk of the company b. It leads to higher perceived income c. It is perceived as increasing the chance of insolvency d. None of the above. Research into income smoothing has concluded that

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: All of the following are likely to result in the use of less debt in a company's capital structure…

A: A company uses two main types of funding – debt and equity. Debt refers borrowings and liabilities…

Q: Purchasing Power Risk is A) the risk of bad business strategy or management decisions being made B)…

A: Purchasing Power Risk is a risk that could cause a possible loss to an investment you made or income…

Q: Why do loss-making companies still pay a dividend? A) The tax benefits exceed the loss incurred in…

A: Dividend policy represents the decision-making of the management regarding the declaration or…

Q: An abnormal return occurs: Only when the actual return is lower than the expected return. Only…

A: A market is said to be efficient, if intrinsic Value of the Security is equal to Market price of the…

Q: How would you expect this situation to affect the assessment of Eastern’s financial condition and…

A: The objective of the question is to understand how the low barriers to entry and the associated risk…

Q: 1. Identify the applicable qualitative characteristics referred to in the Conceptual Framework for…

A: The following facts pertain to the question: Director's Bonuses are used to calculate profits.…

Q: The current ratio and the quick or acid-test ratio may be too high for the overall good of the…

A: The current ratio and the quick ratio are a measure of the liquidity of the company. The current…

Q: Which of the following is not a profitability ratio? Multiple Choice Earnings per share Dividend…

A: A profitability ratio is a ratio that is used to assess a company's ability to generate profit…

Q: Which of the following are false? I) Managers are reluctant to make dividend changes that might have…

A: As per Lintner’s stylized facts, Managers are reluctant to make the dividend changes that might have…

Q: Is this situation consistent with a monopolistically competitive firm maximizing profit? If yes, is…

A: Market Economy- A market economy is an economic system in which market forces, rather than a central…

Q: Those firms that make relatively conservative estimates for their accrued and deferred adjustments…

A: Financial reporting is the process of providing financial information about a company's performance…

Q: Which of the following statements about the agency costs of equity is false? Agency costs of equity…

A: This Statement is False "Agency costs of equity are greater if managers have greater incentive to…

Q: Why would managers be willing to make decisions based on estimated revenues and expenses instead of…

A: The estimated revenues are the expected amount of revenues and estimated expenses are also the…

Q: It is possible for a company to "maximize profits" and also not be profitable. * True False.

A: Allocate resources to develop new products or improve existing ones. This investment might not…

Q: To properly assess a company’s past performance, an analyst requires:A . high earnings quality.B .…

A: Quality of financial reporting is important it pertains to the quality of information contained in…

Q: Evaluate the following statement: Do the ends of positive organizational consequences justify the…

A: Earning management is an accounting device that is used to produce the economic statements showing…

Q: Liquidity risk is A) the risk of bad business strategy or management decisions being made B) the…

A: Liquidity risk is the possibility that an investor or entity may encounter difficulty in buying or…

Q: Suppose profits earned by one firm are independent of profits earned by other firms. When managers…

A: Individuals, organizations, or entities that possess equity or shares in a corporation are known as…

Q: A company's market value is generally less than its book value. True of Falses ?

A: Fixed Assets are the Non-current portion of the assets that disclosed in the assets section of the…

Q: Ratio analysis assists in identifying a company’s weaknesses. Select one: True False

A: Ratio analysis is a method which is used by the business entities for examining the balance sheet…

Q: Financial ratio analysis is a widely used tool for assessing the "health" of an organization and…

A: Financial ratings are quantitative indicators that distinguish important information from a…

Q: A company could use other gains and losses to Omanipulate its stock price. reduce reported sales,…

A: "Other gains and losses" in financial reporting refer to non-operating items that can impact a…

Q: What would be a reason a company would want to overstate income?A. to help nudge its stock price…

A: Income of the business is very important and useful measure of profitability of the business. More…

Q: y holding too much capital may result in the lower the return to shareholders. Explain with some…

A: In the company there is one objective is to increase the return on investment for the shareholders…

Q: Break-Even Point AnalysisThe break-even point is usually expressed as the amount of revenue that…

A: Hello. Since your question has multiple parts, we will solve the first question for you. If you want…

Q: Suppose the current assets of a company decrease over time while all else remains unchanged, then…

A: Meaning of Return on Investment Return on investment (ROI) is performance measure used to evaluate…

Q: Since the goal of a business is to make profit, a performance report consists of only financial…

A: Answer Even though the main goals of business organization is to earn profit for performance…

Q: what reduces both basic earnings and dilluted earnings per share?

A: There are several factors that can reduce both basic earnings per share (EPS) and diluted EPS:…

Q: Explain to management the circumstance that would have to prevail for both marginal and absorption…

A: Marginal and absorption costing are two different approaches to dealing with fixed production…

Q: Potential dilutors are anti-dilutive if they increase basic earnings per share and they should not…

A: Dilutive securities include stock options, stock warrants, convertible preferred stock, and…

Q: It is not possible for two companies to have similar financial and operating leverage but vary in…

A: Leverage:- Leverage is defined as usage of debt, in order to expand the return from an investment.…

Q: The following is a disadvantage of ARR investment appraisal method (select one): A. multiple or…

A: Accounting rate of return is a method that is used for evaluating the investment proposal. It is…

Q: In general, if an action increases a firm's value by providing benefits with a value greater than…

A: The value of the firm showing the current value of the firm in the market it comprises common…

Q: Analyze the truth of this statement: Under the cost method of accounting for investments, a…

A: Cost Method of Accounting for Investments: When it comes to recognizing particular investments in a…

Q: when a client notices a discrepancy between annual profits calculated by the accountant versus your…

A: 1. Accountant’s Cash-based Profit: The accounting method in which the revenue is the amount of cash…

Q: If company A has a higher degree of operating leverage than company B, then which of the following…

A: Variable expenses are those costs that occur in proportionate to the units produced or revenue…

Q: yses typically 1. be price leaders. II. benefit more from economies of scale. III. have better R&D…

A: Companies with strong market positions have a larger market share compared to companies with less…

Q: What are some of the non-financial factors you would consider if you were faced with a decision…

A: When evaluating whether to keep or terminate a business segment, it's crucial to consider not only…

Q: Companies have found that offering discounts to customers in return for early payment can be…

A: Inventory management is an integral part of working capital management. Inventory is a crucial…

Q: Which one of the following statements about dividend policies is FALSE? a. One advantage of…

A: According to client effect theory, businesses should adjust their dividend policies to appeal to a…

Q: Ratio analyses may not be helpful in explaining the performance of the company. Explain the…

A: Ratio analysis is a tool which is used to analyze and asses the financial performance and situation…

Question

Why does income smoothing generally lead to a higher share value?

a. It reduces the perceived risk of the company
b. It leads to higher perceived income
c. It is perceived as increasing the chance of insolvency
d. None of the above.

Research into income smoothing has concluded that

a. Smoothed income indicates high earnings quality
b. Smoothed income indicates low earnings quality
c. The findings are mixed with regards to earnings quality
d. There is no relationship between income smoothing and earnings quality

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Similar questions

Inflation accounting is favored by modern financial analysts over the historical cost accounting as historical cost accounting suffers from the following disadvantage/s a. Understated depreciation and understated cost of sales lead to overstatement of profits, compounded by price inflation b. Understatement of assets will depress a company s share price and make it vulnerable to takeover c. All the given statements are the disadvantages of historical cost accounting that lead to favor inflation accounting. d. Overstated profits can lead to too much being distributed to shareholders, leaving insufficient amounts for investments.
Restructuring the liabilities might positively influence the ROE, but will negativelyinfluence the service level of the company. - it depends on… answer The Statement is true if… The Statement is not true if… Definition key words
When using ratio data for comparison to other companies, analysts should: not interpret the data as a way of determining which companies will survive and outperform others. only use data from one time period. not assume that all companies in the industry are in direct competition. use industry averages, rather than individual companies, for the comparison.
Why would a company choose to have a low dividend payout ratio? A.The company has many investment opportunities with high growth potential B.The company has few investment opportunities and they have low growth potential C.The company has very low profits D.The company has very high profits E.The board of directors has decided to do so. B,C only A,C,Eonly B,D,Eonly B,C,Eonly A, C, Donly
Which of the following best describes why the predicted incremental earnings arising from a given decision are not sufficient in and of themselves to determine whether that decision is worthwhile? ... O A. They do not tell how the decision affects the firm's reported profits from an accounting perspective. O B. They are not easily predicted from historical financial statements of a firm and its competitors. O C. They do not show how the firm's earnings are expected to change as the result of a particular decision. O D. These earnings are not actual cash flows.
Seeking to maximise the current year’s profit is not a sensible objective for most businesses for several reasons. Which is the only one of the following that is not such a reason? Group of answer choices It can be achieved by increasing the number of shareholders. It ignores wealth generation. It ignores risk. It ignores longer term profitability.
Which of the following may reduce the effectiveness of ratio analysis? a. Highly diversified companies may have activities that obscure trends that may appear more clearly in single function companies. b. Management may use window dressing at the end of the year to improve apparent performance. c. Companies in the same industry may use different accounting practices which may indicate differing levels of performance that don't really exist. d. Book values may not be comparable from company to company because of the age of the asset, inflation, etc. e. All of these can reduce the effectiveness of ratio analysis.
Why is the profit maximization supposed not the most important goal of the company?
Companies that make honest, but optimistic, adjusting entries that lead to a higher net income are said to: Multiple Choice report "higher quality" earnings. report "lower quality" earnings. have "defensive" management. have "regressive" management.
How can you debate the benefits and pitfalls of ratio analysis as a stand-alone analysis of a company’s strengths and weaknesses?
Which of the following statements most likely describes a situation that would motivate amanager to issue low-quality fi nancial reports?A . Th e manager’s compensation is tied to stock price performance.B . Th e manager has increased the market share of products signifi cantly.C . Th e manager has brought the company’s profi tability to a level higher thancompetitors.
It is common for a financially healthy company to have a negative net working capital. True False