Equity Valuation【 Reading 37】Sample 2012, industry

tango_gs

Which of the following elements least likely belongs in an industry analysis model?

A) The Life Cycle Phase.

B) A macroeconomic forecast.

C) An industry dividend payout ratio.

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Other elements listed are part of the six-factor industry analysis model. These six factors are: industry classification, external factor review, demand analysis, supply analysis, profitability analysis, and international competition and markets review. A dividend payout ratio does not belong to any of these six factors.

tango_gs

There are at least four factors that contribute to a firm’s profitability and pricing decisions. All of the following are factors that firms consider when establishing their pricing practices EXCEPT:

A) ease of entry into the industry.

B) product segmentation.

C) product demographics.

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The four factors that affect industry pricing practices are product segmentation, degree of industry concentration, ease of industry entry, and price changes in key supply inputs.

tango_gs

Which of the following is NOT a factor that affects industry pricing practices?

A) Ease of industry entry.

B) Product segmentation.

C) Product convexity.

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Product convexity is not a factor that affects industry pricing practices. The four factors that affect industry pricing practices include product segmentation, the degree of industry concentration, the ease of industry entry, and price changes in key supply inputs.

tango_gs

Wanda Brunner, CFA, has prepared a report with the following sub-headings:

• Industry Summary.
• Product Segmentation.
• Industry concentration.
• Ease of industry entry.
• Supply input price.

Her report is most likely about:

A) Industry pricing practices.

B) Porter's five forces.

C) Demand and supply analysis.

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Industry pricing practices are most affected by the following factors:

• Product Segmentation.
• Industry concentration.
• Ease of industry entry.
• Supply input price.

tango_gs

Strawline, Inc. manufactures straws using blown-film extruders. Strawline is planning to purchase a new machine which is based on a new technology. Before making this purchase, however, the company wants to perform a demand/supply analysis as recommended by Porter. Which of the following is least likely a component of a demand/supply analysis?

A) Prospect of a foreign competitor entering the industry.

B) Historical relationship between gross domestic product (GDP) growth and the growth in company revenues.

C) Impact of changes in the national taxation policy.

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Each of these factors except the tax policy would be a part of industry demand and supply analysis.

tango_gs

Which of the following factors would NOT be considered while an analyst is performing an industry demand and supply analysis?

A) Impact of changes in the national taxation policy.

B) Prospect of a foreign competitor entering the industry.

C) Historical relationship between gross domestic product (GDP) growth and the growth in company revenues.





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The prospect of a foreign competitor entering the industry, and the historical relationship between gross domestic product (GDP) growth and growth in company revenues are factors which should be considered as part of industry demand and supply analysis.

tango_gs

Which of the following factors would NOT be considered while an analyst is performing an industry demand and supply analysis?

A) Impact of changes in the national taxation policy.

B) Prospect of a foreign competitor entering the industry.

C) Historical relationship between gross domestic product (GDP) growth and the growth in company revenues.





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The prospect of a foreign competitor entering the industry, and the historical relationship between gross domestic product (GDP) growth and growth in company revenues are factors which should be considered as part of industry demand and supply analysis.

tango_gs

In an industry analysis, the analyst must assess future demand for the industry’s output. Which of the following would NOT be an appropriate method for assessing future demand?

A) Incorporate external forces such as government action into demand forecasts. For example, changes in fiscal policy might increase or decrease demand in a certain industry.

B) Assuming that gross domestic product (GDP) growth for the country will approximately equal sales growth for the industry.

C) Study the inputs and outputs of a given industry. Often the output of one industry is the input for another.

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An analyst could use an estimate of GDP growth as a variable in generating an estimate of revenue growth for an industry, but would not assume that the growth in GDP will automatically equal the sales growth of the industry.

tango_gs

Which of the following factors would least likely be considered while an analyst is performing an industry demand and supply analysis?

A) Short-term imbalances between demand and supply.

B) Availability of property and casualty insurance coverage in the event plant capacity in the industry is affected by natural disasters such as earthquakes and floods.

C) Extent of foreign imports.

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Short-term imbalances between demand and supply and the extent of foreign imports should be considered; disaster insurance should not.

tango_gs

Strawline, Inc. manufactures garbage bags and straws using blown-film extruders. Strawline is planning to purchase a new machine, based on a new technology. Before making this purchase, however, the company wants to consider external forces that can have industry-specific impacts on the plastic straw industry. Which of the following is least likely a force that can have an industry-specific impact?

A) Demographics.

B) Social changes.

C) Termination of agency relationships.

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The outside forces that have an impact on industries include technology, government, social changes, demographics and foreign influences. Termination of agency relationships has no meaning within the CFA exam curriculum.