During the 1990s, GTR Corporation put together a long string of consecutive quarters in which the firm managed to meet or beat the earnings forecasts of Wall Street stock analysts. Some skeptics wondered if GTR managed earnings to meet Wall Streets expectations, meaning that GTR used accounting gimmicks to conceal the true volatility in its business.
How do you think GTRs long run of meeting or beating earnings forecasts affected its cost of capital?
If investors learn that GTRs performance was achieved largely through accounting gimmicks, how do you think they would respond?
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