On June 10, Year 1, Burton Builders, Incorporated, a publicly traded company, announced that it had been awarded a contract to build a football stadium at a contract price of $500 million. This contract would increase its projected revenues by 20% over the next three years. Which of the following statements is correct with regard to this announcement?

Question

Quizplus · Accepted Answer

The announcement of a new contract that would increase revenues by 20% over the next three years is likely to be seen as a positive development by investors, which could lead to an increase in demand for Burton's stock and a higher market price. However, it is important to note that stock prices are influenced by a variety of factors and it is impossible to predict with certainty how the market will react. The other options are not correct because:

B) The announcement does not provide information about Burton's net cash flow from operations.

C) The contract price of $500 million should be recognized as revenue over the period of the contract, not added to assets.

D) The announcement does not provide information about Burton's net income. Even if the contract did result in a 20% increase in revenues, there could be additional costs associated with the project that would offset this increase.

On June 10, Year 1, Burton Builders, Incorporated, a Publicly