Answered: imon and Yuri are two accountants for a…

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter21: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 3MC: David Lyons, CEO of Lyons Solar Technologies, is concerned about his firms level of debt financing....

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Question

Simon and Yuri are two accountants for a large financial firm. When trying to devise a long-term accounting strategy, the two have a disagreement.

“We should be as transparent as possible when disclosing our financial information,” Simon suggests. “If investors have access to our books, they will see the long-term gains we are making and feel more comfortable investing.”

“It’s not that simple,” Yuri retorts. “What if we have a slow quarter and investors panic?

Instead, we should keep our financial information as secret as possible while remaining within the law. That will allow us to keep control over the information available to the public.”

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Question | Simon’s argument is based on which of the following assumptions?

A) Concealing financial information from the public is unethical.

B) The firm can be transparent while still controlling the flow of information to the public.

C) The firm is legally required to disclose all financial records to the public.

D) Companies that are not transparent have something negative to hide.

E) The company’s records will consistently indicate positive trends.

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