Question 1

Which of the following statements about the business cycle is false?

Accepted Answer

A)  Toward the end of a recession, financial stocks typically increase in value as investment and borrowing activities accelerate. 
B)  Once the economy hits a trough and begins to recover, consumer durable stocks become attractive investments. 
C)  Once the economy has recovered and current levels of consumption are sustainable, businesses may consider modernizing or expanding, thus stocks of capital goods industries become attractive investments. 
D)  As the business cycle reaches a peak, inflation rates decrease. 
E)  None of the above (that is, all are true statements) 
A)  Toward the end of a recession, financial stocks typically increase in value as investment and borrowing activities accelerate. 
B)  Once the economy hits a trough and begins to recover, consumer durable stocks become attractive investments. 
C)  Once the economy has recovered and current levels of consumption are sustainable, businesses may consider modernizing or expanding, thus stocks of capital goods industries become attractive investments. 
D)  As the business cycle reaches a peak, inflation rates decrease. 
E)  None of the above (that is, all are true statements)

Question 2

Structural changes occur when the economy undergoes a major organizational change or how it functions.

Accepted Answer

A) True 
 B)False

Question 3

All of the following are industries with a strong,consistent industry component except

Accepted Answer

A)  Gold. 
B)  Steel. 
C)  Railroads. 
D)  Tobacco. 
E)  Paper. 
A)  Gold. 
B)  Steel. 
C)  Railroads. 
D)  Tobacco. 
E)  Paper.

Question 4

During a recession,

Accepted Answer

A)  Financial stocks rise on expectations of increases in loan demand, housing constructions and security offerings. 
B)  Consumer durable stocks rise on expectations of rising consumer confidence and personal income. 
C)  Capital goods stocks rise on expectation of increases in business capital spending. 
D)  Basic materials stocks rise on expectation of rising profit margins. 
E)  Consumer staple stocks rise on expectations that consumers will continue to spend on necessities. 
A)  Financial stocks rise on expectations of increases in loan demand, housing constructions and security offerings. 
B)  Consumer durable stocks rise on expectations of rising consumer confidence and personal income. 
C)  Capital goods stocks rise on expectation of increases in business capital spending. 
D)  Basic materials stocks rise on expectation of rising profit margins. 
E)  Consumer staple stocks rise on expectations that consumers will continue to spend on necessities.

Question 5

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 level of debt for the year 2004.

Accepted Answer

A)  $215.58 
B)  $300.75 
C)  $237.67 
D)  $285.98 
E)  $193.72 
A)  $215.58 
B)  $300.75 
C)  $237.67 
D)  $285.98 
E)  $193.72

Question 6

Which of the following statements concerning the competitive environment is true?

Accepted Answer

A)  High fixed costs encourage firms to produce at a low level of capacity, in order to minimize fixed cost per unit produced. 
B)  Low current prices relative to costs in an industry indicate low barriers to entry. 
C)  Substantial economies of scale do not give a current industry member an advantage over a new firm. 
D)  The ability to substitute another product limits the industry's profit potential. 
E)  Buyers and suppliers do not influence the profitability of an industry. 
A)  High fixed costs encourage firms to produce at a low level of capacity, in order to minimize fixed cost per unit produced. 
B)  Low current prices relative to costs in an industry indicate low barriers to entry. 
C)  Substantial economies of scale do not give a current industry member an advantage over a new firm. 
D)  The ability to substitute another product limits the industry's profit potential. 
E)  Buyers and suppliers do not influence the profitability of an industry.

Question 7

Which of the following statements is false?

Accepted Answer

A)  Financial institutions are typically adversely impacted by higher rates of interest. 
B)  Industries with high operating leverage typically benefit with inflation when their costs are fixed in nominal terms. 
C)  Industries with low financial leverage typically outperform firms with higher leverage when inflation increases. 
D)  A weaker U.S. dollar typically helps U.S. industries. 
E)  Consumer cyclical industries are affected by increasing interest rates. 
A)  Financial institutions are typically adversely impacted by higher rates of interest. 
B)  Industries with high operating leverage typically benefit with inflation when their costs are fixed in nominal terms. 
C)  Industries with low financial leverage typically outperform firms with higher leverage when inflation increases. 
D)  A weaker U.S. dollar typically helps U.S. industries. 
E)  Consumer cyclical industries are affected by increasing interest rates.

Question 8

Assuming the U.S.dollar is strong relative to the Euro,it will be easier for the U.S.paper industry to export to Germany.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A)  Consumer will accept uneven quality 
B)  Products have technical and performance differentiation 
C)  High advertising costs 
D)  Low profits 
E)  Many competitors 
A)  Consumer will accept uneven quality 
B)  Products have technical and performance differentiation 
C)  High advertising costs 
D)  Low profits 
E)  Many competitors

Question 10

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.Estimate the industry growth rate in sales per share.

Accepted Answer

A)  10.5% 
B)  11% 
C)  12.16% 
D)  9.5% 
E)  8.73% 
A)  10.5% 
B)  11% 
C)  12.16% 
D)  9.5% 
E)  8.73%

Question 11

The fact that all firms in an industry do not move together negates the value of industry analysis.

Accepted Answer

A) True 
 B)False

Question 12

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 intrinsic value of the industry now (Year 2004).

Accepted Answer

A)  $155 
B)  $143.52 
C)  $177.79 
D)  $135.77 
E)  $162.34 
A)  $155 
B)  $143.52 
C)  $177.79 
D)  $135.77 
E)  $162.34

Question 13

Which of the following are not typically considered a threat of new entrants to an industry?

Accepted Answer

A)  Low current prices relative to costs 
B)  Large capital requirements 
C)  Extensive distribution channels with exclusive distribution contracts 
D)  Government policy restricting access to raw materials 
E)  Large volume purchases relative to the sales of a supplier 
A)  Low current prices relative to costs 
B)  Large capital requirements 
C)  Extensive distribution channels with exclusive distribution contracts 
D)  Government policy restricting access to raw materials 
E)  Large volume purchases relative to the sales of a supplier

Question 14

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.Obtain an estimate of the per share depreciation charge for the year 2004.

Accepted Answer

A)  $15.81 
B)  $12.35 
C)  $23.68 
D)  $25.93 
E)  $35 
A)  $15.81 
B)  $12.35 
C)  $23.68 
D)  $25.93 
E)  $35

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 personal consumption expenditures for the year 2004.

Accepted Answer

A)  $7,500 billion 
B)  $7,000 billion 
C)  $7140 billion 
D)  $7,550.5 billion 
E)  $6,825.75 billion 
A)  $7,500 billion 
B)  $7,000 billion 
C)  $7140 billion 
D)  $7,550.5 billion 
E)  $6,825.75 billion

Question 16

Which of the following is not a competitive force suggested by Porter?

Accepted Answer

A)  Rivalry among existing competitors 
B)  Threat of new entrants 
C)  Threat of substitute products 
D)  Government and regulatory influences 
E)  None of the above (that is, all are competitive forces) 
A)  Rivalry among existing competitors 
B)  Threat of new entrants 
C)  Threat of substitute products 
D)  Government and regulatory influences 
E)  None of the above (that is, all are competitive forces)

Question 17

Consumer staples tend to outperform other industries the most at the peak of a business cycle.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  $109.59 
B)  $113.98 
C)  $949.83 
D)  $1,369.94 
E)  $1,424.73 
A)  $109.59 
B)  $113.98 
C)  $949.83 
D)  $1,369.94 
E)  $1,424.73

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Which of the following economic variables does not have an impact on industry analysis?

Accepted Answer

A)  Inflation 
B)  Interest rates 
C)  International economics 
D)  Consumer sentiment 
E)  None of the above (that is, all of the above economic variables have at least some impact on industry analysis) 
A)  Inflation 
B)  Interest rates 
C)  International economics 
D)  Consumer sentiment 
E)  None of the above (that is, all of the above economic variables have at least some impact on industry analysis)

Exam 13: Industry Analysis

Which of the following statements about the business cycle is false?

Structural changes occur when the economy undergoes a major organizational change or how it functions.

All of the following are industries with a strong,consistent industry component except

During a recession,

Which of the following statements concerning the competitive environment is true?

Which of the following statements is false?

Assuming the U.S.dollar is strong relative to the Euro,it will be easier for the U.S.paper industry to export to Germany.

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

The fact that all firms in an industry do not move together negates the value of industry analysis.

Which of the following are not typically considered a threat of new entrants to an industry?

Which of the following is not a competitive force suggested by Porter?

Consumer staples tend to outperform other industries the most at the peak of a business cycle.

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

Which of the following economic variables does not have an impact on industry analysis?

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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