50 A financial manager's goal of maximizing current or short-term earnings may not beappropriate because *O increased earnings may be accompanied by unacceptably higher levels of riskO earnings are subjective; they can be defined in various ways such as accounting or economic earningsO it fails to consider the timing of the benefitsO All of the choices

Short-term profits are earnings generated by the sale of an asset that a firm has owned for one year…

Answered: A financial manager's goal of…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter6: Accounting Quality

Section: Chapter Questions

Problem 1QE

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A financial manager’s goal of maximizing current or short-term earnings may not be appropriate because a. earnings are subjective; they can be defined in various ways such as accounting or economic earnings b. increased earnings may be accompanied by unacceptably higher levels of risk c. All of the choices d. it fails to consider the timing of the benefits
Evaluate the following:Managers should not focus on the current stock value because doing so will lead to an over emphasis on short term profits at the expense o long term profits
Explain how managers should not focus on the current stock value because doing so will lead to an overemphasis on short-term profits at the expense of long-term profits.
Evaluate the following statement: Managers should not focus on the current stock value because doing so will lead to an overemphasis on the short term profits at the expense of long-term profits.
Why does income smoothing generally lead to a higher share value? a. It reduces the perceived risk of the companyb. It leads to higher perceived incomec. It is perceived as increasing the chance of insolvencyd. None of the above. Research into income smoothing has concluded that a. Smoothed income indicates high earnings qualityb. Smoothed income indicates low earnings qualityc. The findings are mixed with regards to earnings qualityd. There is no relationship between income smoothing and earnings quality
Which of the following is not a factor in producing earnings forecasts? a) Estimating the level of dividends b) Separation of recurring and nonrecurring components c) Recognizing potential earnings management d) Recognizing potential income smoothing
Explain in full detail why the following statement is false: "Financial managers should not focus on the present stock value of the company. Instead, they should focus on the profitability of the company. Doing so will result in increasing the value of the stock.
Which of the following is true about earnings management? Group of answer choices A. It works outside the constraints of GAAP B. It works outside the constraints of GAAP and t tries to improve stakeholder’s views of the company’s financial position. C. It tries to improve stakeholder’s views of the company’s financial position. D. It works within the constraints of GAAP and it tries to improve stakeholder’s views of the company’s financial position.
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.
Which of the following statements is false regarding the abnormal earnings approach to valuation? Multiple Choice The method uses earnings and equity book value numbers as direct inputs in the valuation process. The method uses the cost of capital as a fundamental economic benchmark. This approach produces results that are generally equivalent to the free cash flow model. This approach is based on the notion that the value of a company is driven primarily by the level of earnings.
Which of the following is a criticism of a policy of maximizing the firm’s return on equity (ROE)? ROE is based on after-tax earnings, not cash flows. ROE does not consider risk. ROE ignores the size of the initial investment as well as future cash flows. All of these are criticisms of ROE as a goal.
is(are)the reason(s) for profit maximization not a reasonable goal for firms. a. Profit concept ignores timing of the returns b. Profit concept ignores the cash flow available to stock holders c. Profit is risky and can be some times loss d. All the above

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