FIN 4828 CH. 13

At the initial stage of an economic recovery, 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.

B

During a recession which industry is most likely to excel? A. Consumer staples B. Consumer durables C. Basic industries D. Financial stocks E. Capital goods

B

During which stage of the industrial life cycle is the product or service recognized as viable and the demand substantial? A. Early pioneering development B. Rapid accelerating growth C. Acquisition and consolidation D. Mature growth E. Stabilization and market maturity

B

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: 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

B

The financial risk for the retail store industry is difficult to judge because of A. Convertible debt. B. Numerous building leases. C. Warrants. D. Variable operating profits. E. Extensive use of preferred stock.

B

Once it becomes clear the economy is recovering, 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.

C

To estimate earnings per share an analyst will start by estimating A. Profits B. Free cash flows C. Sales D. Number of shares outstanding E. All of the above

C

When compared to the overall market P/E, the retail store P/E was estimated to be ____ and near the ____ of the range. A. More volatile, low end B. More volatile, high end C. Less volatile, low end D. Less volatile, high end E. Equally volatile, middle

C

Which of the following is not a stage in the industrial life cycle? A. Early pioneering development B. Rapid accelerating growth C. Acquisition and consolidation D. Mature growth E. Stabilization and market maturity

C

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

C

Which of the following is not considered a structural influence on the economy and industry? A. Demographics B. Life-styles C. International economics D. Social values E. Technology

C

Which of the following statements is false? 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.

C

Which of the following statements regarding global industry analysis is true? A. Cavaglia, Brightman, and Aked (2000) found that country factors dominated industry factors in terms of explaining equity returns. B. Cavaglia, Brightman, and Aked (2000) found that industry factors have been declining in importance. C. Cavaglia, Brightman, and Aked (2000) found that industry factors dominate country factors. D. Both a and b are true E. All of the above are true

C

An increase in any of the following will cause the expected dividend growth rate to increase for an industry except A. Profit margin B. Total asset turnover C. Return on equity D. Dividend payout ratio E. Financial leverage

D

At what stage in the industrial life cycle is there an influx of competition? A. Early pioneering development B. Rapid accelerating growth C. Acquisition and consolidation D. Mature growth E. Stabilization and market maturity

D

During which industry life cycle stage do firms experience low rates of return on capital and investors begin to seek alternative uses of capital? A. Pioneering and development B. Mature growth C. Stabilization and market maturity D. Deceleration of growth and decline E. Disassembly and restructure

D

In which industrial life cycle stage do sales correlate highly with an economic series or the economy in general? A. Pioneering development B. Rapidly accelerating growth C. Mature growth D. Stabilization and market maturity E. Deceleration of growth and decline

D

The ____ of an industry is a function of retention rate and return on equity. A. Expected return B. Expected business risk C. Expected financial risk D. Expected growth rate E. Expected sales volatility

D

Toward the business cycle peak 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.

D

Towards the end of the recession which industry is most likely to excel? A. Consumer staples B. Consumer durables C. Basic industries D. Financial stocks E. Capital goods

D

When forecasting industry sales it can be useful to A. Utilize the industry life cycle. B. Use input-output analysis. C. Use the relationship between an industry and the aggregate economy. D. All of the above. E. None of the above.

D

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

D

Which of the following is not characteristic of the "growth" phase in the industry life cycle? A. Consumer will accept uneven quality B. Products have technical and performance differentiation C. High advertising costs D. Low profits E. Many competitors

D

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

D

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

D

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

D

A number of factors affect the cash flow and risk prospects of different industries. Which of the following is not such a factor? A. Demographics B. Life-styles C. Technology D. Politics E. None of the above (that is, all are factors to be considered)

E

All of the following are industries with a strong, consistent industry component except A. Gold. B. Steel. C. Railroads. D. Tobacco. E. Paper.

E

Analysts should identify and monitor 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

E

During a recession, 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.

E

In analyzing risk levels among industries, studies have found that 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

E

What might cause an industry's sales to decline? A. Changes in consumer tastes B. Product obsolescence C. Growth of substitute products D. Sluggish economic growth E. All of the above

E

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

E

Which of the following economic variables does not have an 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)

E

Which of the following statements is false? 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

E

A number of economic variables affect both the economy and industries. Which of the following statements is false? A. Industries with high levels of operating and financial leverage should benefit from lower inflation rates. B. Banks generally benefit from volatile interest rates, while stable interest rates reduce margins. C. Consumers who are optimistic about the economy will spend money on high-priced items, such as autos and houses. D. The abundance or scarcity of input components can affect the perceived attractiveness of an industry. E. None of the above (that is, all are true statements)

A

Toward the end of a recession, 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

Which of the following statements about industry analysis is 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.

A

Which of the following statements is not true? A. During a specific time period, rates of return across industry do not vary substantially. B. The rates of return for individual industries do vary substantially over time. C. During a specific time period, rates of return within industries do vary substantially. D. Risk measures for individual industries remain relatively constant over time. E. None of the above (that is, all are true statements)

A

Which of the following statements regarding cyclical industries is true? A. Cyclical industries are affected by changes in consumer sentiment. B. Cyclical industries are not affected by the consumer's willingness to borrow and spend money. C. Cyclical industries often outperform other sectors during a recession. D. All of the above statements are true. E. None of the above statements are true.

A