Which of the following statements is NOT a benefit of hedging?
A) In a progressive tax environment hedging increases after tax income
B) A more stable income may be more conducive to sales in the case of consumer durables and capital goods
C) Firms which hedge are valued significantly more highly than firms which do not hedge
D) Volatile earnings may lead to higher employee turnover and higher wage demands

Question

Quizplus · Accepted Answer

Hedging is primarily aimed at reducing financial risk and stabilizing earnings, rather than directly increasing a firm's market valuation. The statement that firms which hedge are valued significantly more highly than firms which do not hedge oversimplifies the complex factors that contribute to a firm's valuation.

Which of the Following Statements Is NOT a Benefit of Hedging