Question 1

The industry life cycle can be rejuvenated at any stage by product innovations that attract new customers or convince existing customers to buy the new product.

Accepted Answer

A) True 
 B)False  True

Question 2

Complete consistency over time for different industries would indicate that industry analysis is not necessary after market analysis.

Accepted Answer

A) True 
 B)False  True

Question 3

Exhibit 13.1
Use the Information Below for the Following Problem(S)
Assume that you are an analyst for the U.S. Autoparts Industry. Consider the following information that you propose to use to obtain an estimate of year 2002 EPS for the U.S. Autoparts Industry:
 $\begin{array}{lrr}
\begin{array}{l}
\
\
\text{Personal consumption expenditures}\
\text{Personal consumption expenditures}\ \text{growth}\
\text{Industry Sales per share}\
\text{Industry Operating profit margin}\
\text{Industry Depreciation/Fixed Assets}\
\text{Industry Fixed asset turnover}\
\text{Interest rate}\
\text{Industry Total asset turnover}\
\text{Industry Debt/Total assets}\
\text{Industry Tax rate}\
\end{array}\
\begin{array}{r}
\
\text{Year 2003}\
\hline
\text{\$6,800 Billion}\\\
 \$ 525 \\\\\\\\
\end{array}\
\begin{array}{r}
Estimated\
\text{Year 2004}\
\hline\ 1.5 \% \\\
 15 \% \
8.25 \% \
3\
6 \% \
1.2 \
45 \% \
36\%
\end{array}\
\end{array}$
 
In addition a regression analysis indicates the following relationship between growth in industry sales per share and personal consumption expenditures (PCE) growth is
%D Sales per share = 0.02 + 1.5(%DPCE)
-Refer to Exhibit 13.1.Calculate industry EPS for the year 2004.

Accepted Answer

A)  $45.25 
B)  $36.79 
C)  $57.25 
D)  $32.56 
E)  $48.57 
A)  $45.25 
B)  $36.79 
C)  $57.25 
D)  $32.56 
E)  $48.57 B

Question 4

When considering inputs,you would evaluate an industry's prospects based on those of its raw material suppliers,labor force,etc.

Accepted Answer

A) True 
 B)False

Question 5

In the rapid accelerating growth stage,profit margins are typically very high.

Accepted Answer

A) True 
 B)False

Question 6

The financial risk for the retail store industry is difficult to judge because of

Accepted Answer

A)  Convertible debt. 
B)  Numerous building leases. 
C)  Warrants. 
D)  Variable operating profits. 
E)  Extensive use of preferred stock. 
A)  Convertible debt. 
B)  Numerous building leases. 
C)  Warrants. 
D)  Variable operating profits. 
E)  Extensive use of preferred stock.

Question 7

Exhibit 13.2
Use the Information Below for the Following Problem(S)
At the end of the year 2004 the Office Equipment Industry had free cash flow to equity (FCFE) of $2.50 per share. The following annual growth rates in FCFE are projected:
 $$\begin{array} { c c } 
\text { Year } & \text { Grapth Rata } \
\hline 2005 & 10 \% \
2006 & 15 \% \
2007 & 20 \% \
2008 & 25 \% \
2009 & 20 \% \
2010 & 15 \% \
2011 & 10 \% \
2012 & 7 \%
\end{array}$$ 
From year 2013 onward growth in FCFE is expected to remain constant at 5% per year. The industry has a beta of 0.90 and the current industry price is $105. Currently the yield on 10-year Treasury notes is 5% and the equity risk premium is 4%
-Refer to Exhibit 13.2.Calculate the required rate of return on equity.

Accepted Answer

A)  5% 
B)  9.2% 
C)  8.6% 
D)  10% 
E)  4.3% 
A)  5% 
B)  9.2% 
C)  8.6% 
D)  10% 
E)  4.3%

Question 8

Exhibit 13.4
Use the Information Below for the Following Problem(S)
The Furniture Manufacturing Industry had free cash flow to equity (FCFE) of $63 for the most recent year ending reported yesterday. The industry is in the mature stage and anticipates a growth rate of 4% indefinitely. The required rate of return is 11% for this industry.
-Refer to Exhibit 13.4.Calculate the intrinsic value of the Furniture Manufacturing Industry today.

Accepted Answer

A)  $573 
B)  $596 
C)  $900 
D)  $936 
E)  $989 
A)  $573 
B)  $596 
C)  $900 
D)  $936 
E)  $989

Question 9

During which stage of the industrial life cycle is the product or service recognized as viable and the demand substantial?

Accepted Answer

A)  Early pioneering development 
B)  Rapid accelerating growth 
C)  Acquisition and consolidation 
D)  Mature growth 
E)  Stabilization and market maturity 
A)  Early pioneering development 
B)  Rapid accelerating growth 
C)  Acquisition and consolidation 
D)  Mature growth 
E)  Stabilization and market maturity

Question 10

Structural changes do have a cyclical pattern.

Accepted Answer

A) True 
 B)False

Question 11

During which industry life cycle stage do firms experience low rates of return on capital and investors begin to seek alternative uses of capital?

Accepted Answer

A)  Pioneering and development 
B)  Mature growth 
C)  Stabilization and market maturity 
D)  Deceleration of growth and decline 
E)  Disassembly and restructure 
A)  Pioneering and development 
B)  Mature growth 
C)  Stabilization and market maturity 
D)  Deceleration of growth and decline 
E)  Disassembly and restructure

Question 12

Country risk is the uncertainty of earning due to changes in exchange rates faced by firms in this industry that sell outside the United States.

Accepted Answer

A) True 
 B)False

Question 13

An example of a barrier to entry is high prices relative to costs.

Accepted Answer

A) True 
 B)False

Question 14

Switching from one industry group to another over the course of a business cycle is known as a rotation strategy.

Accepted Answer

A) True 
 B)False

Question 15

The way to reduce the rivalry between existing competitors in an industry is to reduce the barrier to entry to the industry.

Accepted Answer

A) True 
 B)False

Question 16

The rates of returns for firms within an industry vary which indicates that company analysis is necessary after industry analysis.

Accepted Answer

A) True 
 B)False

Question 17

Risk measures for different industries remain fairly constant over time,so the historical risk analysis is useful for estimating future risk.

Accepted Answer

A) True 
 B)False

Question 18

If the economic outlook was such that you expected corporate earnings to decline,consumers have excessive levels of debt,and there is significant overcapacity in the technology sector,then an appropriate asset allocation policy would be to:

Accepted Answer

A)  Overweight equity especially technology stocks and underweight bonds 
B)  Underweight equity especially technology stocks and overweight bonds 
C)  Overweight equity especially technology stocks and overweight bonds 
D)  Underweight equity especially technology stocks and underweight bonds 
E)  None of the above 
A)  Overweight equity especially technology stocks and underweight bonds 
B)  Underweight equity especially technology stocks and overweight bonds 
C)  Overweight equity especially technology stocks and overweight bonds 
D)  Underweight equity especially technology stocks and underweight bonds 
E)  None of the above

Question 19

Exhibit 13.3
Use the Information Below for the Following Problem(S)
The Home Appliance Industry had free cash flow to equity (FCFE) of $87 for the most recent year ending reported yesterday. The industry anticipates a growth rate of 8% for the next three years due to favorable economic conditions. However, the growth rate is expected to decline to 4% after three years and remain at that level indefinitely. The required rate of return is 12% for this industry.
-Refer to Exhibit 13.3.Calculate the intrinsic value of the Home Appliance Industry today.

Accepted Answer

A)  $605.03 
B)  $1,014.09 
C)  $1,256.88 
D)  $1,424.73 
E)  $1,729.76 
A)  $605.03 
B)  $1,014.09 
C)  $1,256.88 
D)  $1,424.73 
E)  $1,729.76

Question 20

At what stage in the industrial life cycle is there an influx of competition?

Accepted Answer

A)  Early pioneering development 
B)  Rapid accelerating growth 
C)  Acquisition and consolidation 
D)  Mature growth 
E)  Stabilization and market maturity 
A)  Early pioneering development 
B)  Rapid accelerating growth 
C)  Acquisition and consolidation 
D)  Mature growth 
E)  Stabilization and market maturity

Exam 13: Industry Analysis

The industry life cycle can be rejuvenated at any stage by product innovations that attract new customers or convince existing customers to buy the new product.

Complete consistency over time for different industries would indicate that industry analysis is not necessary after market analysis.

When considering inputs,you would evaluate an industry's prospects based on those of its raw material suppliers,labor force,etc.

In the rapid accelerating growth stage,profit margins are typically very high.

The financial risk for the retail store industry is difficult to judge because of

During which stage of the industrial life cycle is the product or service recognized as viable and the demand substantial?

Structural changes do have a cyclical pattern.

During which industry life cycle stage do firms experience low rates of return on capital and investors begin to seek alternative uses of capital?

Country risk is the uncertainty of earning due to changes in exchange rates faced by firms in this industry that sell outside the United States.

An example of a barrier to entry is high prices relative to costs.

Switching from one industry group to another over the course of a business cycle is known as a rotation strategy.

The way to reduce the rivalry between existing competitors in an industry is to reduce the barrier to entry to the industry.

The rates of returns for firms within an industry vary which indicates that company analysis is necessary after industry analysis.

Risk measures for different industries remain fairly constant over time,so the historical risk analysis is useful for estimating future risk.

If the economic outlook was such that you expected corporate earnings to decline,consumers have excessive levels of debt,and there is significant overcapacity in the technology sector,then an appropriate asset allocation policy would be to:

At what stage in the industrial life cycle is there an influx of competition?

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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