Question $6$:

A$.$ Two firms of the same size and risk release their annual reports on the same day. It turns out that they each report the same amount of net income. Following the release, the share

price of one firm rose strongly while the other rose hardly at all.

Explain how it is possible for the market to react positively to one firm'sannual report and

B$.$ Shares of firm A and firm B trade on an efficient market. The two firms are similar in their

operations, are of the same size and risk, and are growing rapidly. They both report the

same net income. However, you see in the financial statement notes that

firm A uses declining

balance amortization for capital assets, while firm B uses straight$-$line

amortization.

Which firm's shares should sell at the higher price$-$earnings ratio, all other things being equal? Explain.