Two growing firms are identical except that one firm capitalizes whereas the other firm expenses costs for long-lived resources over time. For these two firms, which of the following statements is generally true?
I. The expensing firm will show a more volatile pattern of reported income than capitalizing firm.
II. The expensing firm will show a less volatile pattern of return on assets than the capitalizing firm.
III. The expensing firm will show lower cash flows from operations than the capitalizing firm.
A. I only
B. II only
C. I and III only
D. II and III only
Answer: C
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