Two Growing Firms Are Identical Except That One Firm Capitalizes

Multiple Choice

Two growing firms are identical except that one firm capitalizes, whereas the other firm expenses costs for long-lived resources over time. For these two firms, which of the following statements is generally true?
I. The expensing firm will show a more volatile pattern of reported income than capitalizing firm.
II. The expensing firm will show a less volatile pattern of return on assets than the capitalizing firm.
III. The expensing firm will show lower cash flows from operations than the capitalizing firm.

A) I only
B) II only
C) I and III only
D) II and III only