When Assessing Earnings Persistence, It Is Important to Analyze Discretionary

When assessing earnings persistence, it is important to analyze discretionary expenditures. Which of the following is correct?

I. Research and development is generally considered a discretionary expenditure.
II. Decreased discretionary expenditures should always be taken as a positive indicator that the company is getting costs under control.
III. Advertising expenditures can be considered discretionary expenditures, which often have implications for future sales.
IV. Absolute levels of discretionary expenditures are more important than the level of expenditures relative to sales.

A) I, II, and III
B) I, III, and IV
C) II, III, and IV
D) I and III

Correct Answer:

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