Mechanistic hypothesis and efficient market hypothesis Hudson Ltd had always classified interest paid as an operating cash flow. In 2024 Hudson Ltd changed its accounting policy and classified interest paid of \(\$ 50000\) as a financing cash flow in its statement of cash flows. The reported amounts are summarised below.

Required 

1. Describe the mechanistic hypothesis. What does the mechanistic hypothesis predict about how investors and, therefore, share prices will respond to the increase in operating cash flows reported in Hudson Ltd's 2024 financial statements?

2. Describe the semi-strong form of market efficiency. What does the efficient market hypothesis predict about how investors and, therefore, share prices will respond to the increase in operating cash flows reported in Hudson Ltd's 2024 financial statements?

Transcribed Image Text:

Net cash inflows from operating activities Net cash outflows for investing activities Net cash outflows from financing activities Net movement in cash 2023 2024 $'000 $'000 400 450 (300) (300) (50) (100) 50 50