During the 1990s, General Electric reported a long string of consecutive quarters in which the company managed to meet or beat the earnings forecast of Wall Street stock analysts. Some skeptics wondered if GE "managed" earnings to meet Wall Street expectations, meaning that GE used accounting gimmicks to conceal the true volatility of its business performance.

Answer the following questions:

1) How do you think GE's long run of meeting or beating earnings forecasts might affect its cost of capital?

2) If investors learned that GE's consistent performance was achieved largely through accounting gimmicks, how do you think they might respond?