If someone deliberately understates costs and thereby increases profits, this can cause the price of the stock to rise above its intrinsic value. The stock price will probably fall in the future. Also, those who participated in the fraud can be prosecuted, and the firm itself can be penalized.

Question

Quizplus · Accepted Answer

Deliberately understating costs to increase profits is fraudulent behavior and can cause the stock price to be overvalued. This can eventually cause the stock price to fall, and those involved in the fraud can face legal consequences. Additionally, the firm can be penalized for participating in illegal activities.

If Someone Deliberately Understates Costs and Thereby Increases Profits, This