If someone deliberately understates costs and thereby increases profits, then 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 a form of financial fraud and can cause the stock price to rise above its intrinsic value, leading to future declines. The individuals involved in the fraud can be prosecuted, and the company can face penalties.

If Someone Deliberately Understates Costs and Thereby Increases Profits, Then