Question 1

An increase in any of the following will cause the expected dividend growth rate to increase for an industry except

Accepted Answer

A)  Profit margin 
B)  Total asset turnover 
C)  Return on equity 
D)  Dividend payout ratio 
E)  Financial leverage 
A)  Profit margin 
B)  Total asset turnover 
C)  Return on equity 
D)  Dividend payout ratio 
E)  Financial leverage

Question 2

Which of the following statements is false?

Accepted Answer

A)  Returns for different industries vary within a wide range 
B)  Rates of return for individual industries vary over time 
C)  Rates of return of firms within industries vary over time 
D)  Different industries' risk levels vary within a wide range 
E)  Risk measures for different industries vary within a wide range over time 
A)  Returns for different industries vary within a wide range 
B)  Rates of return for individual industries vary over time 
C)  Rates of return of firms within industries vary over time 
D)  Different industries' risk levels vary within a wide range 
E)  Risk measures for different industries vary within a wide range over time

Question 3

Which of the following is not considered a structural influence on the economy and industry?

Accepted Answer

A)  Demographics 
B)  Life-styles 
C)  International economics 
D)  Social values 
E)  Technology 
A)  Demographics 
B)  Life-styles 
C)  International economics 
D)  Social values 
E)  Technology

Question 4

Input-output analysis would be useful to indicate the long run relationship between industries.

Accepted Answer

A) True 
 B)False

Question 5

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.Suppose unexpected inflation suddenly increases by 2 percent and there are no other changes in expectations.What will be the new intrinsic value of the Furniture Manufacturing Industry today?

Accepted Answer

A)  $700 
B)  $728 
C)  $989 
D)  $1,260 
E)  $1,310 
A)  $700 
B)  $728 
C)  $989 
D)  $1,260 
E)  $1,310

Question 6

In analyzing risk levels among industries,studies have found that

Accepted Answer

A)  risk levels vary among different industries. 
B)  risk levels remained fairly constant across industries. 
C)  risk levels for the same industry varied over time. 
D)  risk levels for the same industry remain fairly constant over time. 
E)  Choices a and d 
A)  risk levels vary among different industries. 
B)  risk levels remained fairly constant across industries. 
C)  risk levels for the same industry varied over time. 
D)  risk levels for the same industry remain fairly constant over time. 
E)  Choices a and d

Question 7

Which of the following is not characteristic of the "decline" phase of the industry life cycle?

Accepted Answer

A)  Little product differentiation 
B)  Substantial manufacturing overcapacity 
C)  Many competitors 
D)  Falling prices 
E)  None of the above (this is, all are characteristics of the "decline" phase) 
A)  Little product differentiation 
B)  Substantial manufacturing overcapacity 
C)  Many competitors 
D)  Falling prices 
E)  None of the above (this is, all are characteristics of the "decline" phase)

Question 8

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 present value now (Year 2004)of FCFE during the period of increasing growth (that is for years 2005 to 2008).

Accepted Answer

A)  $17.19 
B)  $14.15 
C)  $11.59 
D)  $15.78 
E)  $18.09 
A)  $17.19 
B)  $14.15 
C)  $11.59 
D)  $15.78 
E)  $18.09

Question 9

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 present value now (Year 2004)of FCFE during the period of declining growth (that is for years 2009 to 2012).

Accepted Answer

A)  $17.19 
B)  $14.15 
C)  $11.59 
D)  $15.78 
E)  $18.09 
A)  $17.19 
B)  $14.15 
C)  $11.59 
D)  $15.78 
E)  $18.09

Question 10

Which of the following statements about industry analysis is true?

Accepted Answer

A)  During any time period, rates of return of firms within industries do vary within a wide range. 
B)  Aggregate market performance accurately reflects the performance of alternative industries. 
C)  Risk of return for individual industries have not varied over time, so one can simply extrapolate past performance into the future. 
D)  All of the above are true. 
E)  None of the above are true. 
A)  During any time period, rates of return of firms within industries do vary within a wide range. 
B)  Aggregate market performance accurately reflects the performance of alternative industries. 
C)  Risk of return for individual industries have not varied over time, so one can simply extrapolate past performance into the future. 
D)  All of the above are true. 
E)  None of the above are true.

Question 11

Analysts should identify and monitor

Accepted Answer

A)  The current and emerging trends and patterns affecting an industry. 
B)  The indicators of trends and patterns in structural factors. 
C)  The momentum toward change in trends and patterns in structural factors. 
D)  Choices a and b 
E)  All of the above 
A)  The current and emerging trends and patterns affecting an industry. 
B)  The indicators of trends and patterns in structural factors. 
C)  The momentum toward change in trends and patterns in structural factors. 
D)  Choices a and b 
E)  All of the above

Question 12

Which of the following is not a stage in the industrial life cycle?

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 13

The relationship between an economic series such as disposable personal income and retail sales is usually stronger in an industry that has become more specialized.

Accepted Answer

A) True 
 B)False

Question 14

The capital goods industry typically outperforms other sectors during a recession.

Accepted Answer

A) True 
 B)False

Question 15

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 the per share EBIT for the year 2004.

Accepted Answer

A)  $95.33 
B)  $70.42 
C)  $85.56 
D)  $95.89 
E)  $75.32 
A)  $95.33 
B)  $70.42 
C)  $85.56 
D)  $95.89 
E)  $75.32

Question 16

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 FCFE at the end of the 8% growth period three years from now.

Accepted Answer

A)  $78.00 
B)  $107.88 
C)  $109.59 
D)  $111.64 
E)  $113.52 
A)  $78.00 
B)  $107.88 
C)  $109.59 
D)  $111.64 
E)  $113.52

Question 17

The micro approach to estimating the industry multiple would entail examining specific variables such as: dividend payout ratios,required rates of return,and expected growth rates of dividends and earnings.

Accepted Answer

A) True 
 B)False

Question 18

Towards the end of the recession which industry is most likely to excel?

Accepted Answer

A)  Consumer staples 
B)  Consumer durables 
C)  Basic industries 
D)  Financial stocks 
E)  Capital goods 
A)  Consumer staples 
B)  Consumer durables 
C)  Basic industries 
D)  Financial stocks 
E)  Capital goods

Question 19

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 the industry year 2004 EBITDA per share.

Accepted Answer

A)  $95.05 
B)  $89.15 
C)  $92.56 
D)  $94.73 
E)  $86.23 
A)  $95.05 
B)  $89.15 
C)  $92.56 
D)  $94.73 
E)  $86.23

Question 20

Which of the following is not considered a basic competitive force?

Accepted Answer

A)  Rivalry among existing competitors 
B)  Threat of new entrants 
C)  Threat of substitute products 
D)  Threat of government interference 
E)  Bargaining power of buyers and suppliers 
A)  Rivalry among existing competitors 
B)  Threat of new entrants 
C)  Threat of substitute products 
D)  Threat of government interference 
E)  Bargaining power of buyers and suppliers

Exam 13: Industry Analysis

An increase in any of the following will cause the expected dividend growth rate to increase for an industry except

Which of the following statements is false?

Which of the following is not considered a structural influence on the economy and industry?

Input-output analysis would be useful to indicate the long run relationship between industries.

In analyzing risk levels among industries,studies have found that

Which of the following is not characteristic of the "decline" phase of the industry life cycle?

Which of the following statements about industry analysis is true?

Analysts should identify and monitor

Which of the following is not a stage in the industrial life cycle?

The relationship between an economic series such as disposable personal income and retail sales is usually stronger in an industry that has become more specialized.

The capital goods industry typically outperforms other sectors during a recession.

The micro approach to estimating the industry multiple would entail examining specific variables such as: dividend payout ratios,required rates of return,and expected growth rates of dividends and earnings.

Towards the end of the recession which industry is most likely to excel?

Which of the following is not considered a basic competitive force?

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

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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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