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A company has changed how it accounts for inventory. Taxes are unaffected, although the resulting earnings report released this quarter is 20% higher than what
A company has changed how it accounts for inventory. Taxes are unaffected, although the resulting earnings report released this quarter is 20% higher than what it would have been under the old accounting system. There is no other surprise in the earnings report, and the change in the accounting treatment was publicly announced earlier. Assume market efficiency. Will the stock price be higher when the firm releases the earnings report? Explain.
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