TAILIEUCHUNG - Learning Financial Accounting Theory_3

Tham khảo tài liệu 'learning financial accounting theory_3', tài chính - ngân hàng, kế toán - kiểm toán phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 130 Chapter 4 Again the accountants answer is the concept of full disclosure. By increasing the information content of financial reporting including supplementary information in notes MD A and FOFI not only do accountants help preserve their competitive advantage they also improve social welfare by reducing he adverse impact of inside information. If investors do in fact find accounting information useiul this should show up as a response of security prices to this information. In the next chapter we will examine empirical evidence in this regard. Questions and Problems reports on the same 1. Two firms of the same size and risk release their annual day. It turns out that they each report the same amount of net income. Following the release the share price of one firm rose strongly while the other rose hardly at all. Explain how it is possible for the market to react positively to one firms annual report and hardly at all to the other when the firms are similar in size risk and reported profitability. 2. Shares of firm A and firm B are traded on an efficient market. The two firms are of the same size and risk. They both report the same net income. However you see in the footnotes that firm A uses the LIFO inventory method and declining-balance amortization for capital assets while firm B uses method and straight-line amortization. Which firms shares should sell at the higher price-to-earnings ratio all other things being equal Explain. Assume a period of rising pri 3. Using the concept of information asymmetry answer the following questions a. You observe that used cars sold by new car dealers sell models of same make year and condition than used cars sold by used car dealers. Why b. Why would a fire insurance policy contain a 150 deductible provision c. Why would a life insurance company require a medical approving applications for new policies d. A firm plans to raise additional capital by means of a new issue of common shares. Before doing so it hires a .

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