The analyst must complete an analysis of the industry in which the company operates. One part of this analysis is to determine the degree of buyer power. For the following questions please identify (by underlining the correct choice) which would increase the buyer's power:
1. The buyer purchases (20% of my product or less than 1% of my product).
2. The buyer product is (uniform or differentiated).
3. The purchase represents a (small or large) percentage of the buyers cost.
4. The buyer is (marginally profitable or highly profitable).
5. Quality is (very important or marginally important) to the buyer.
A second part to analyzing the industry is to determine the degree of the seller's power. For the following questions please identify (by underlining the correct choice) which would increase the seller's power:
6. There are (many sellers or few sellers) of the product.
7. The sellers are (uniform or differentiated).
8. There are (no close substitutes or a lot of close substitutes) to the seller's product.
9. Forward integration is (easy or difficult).
10. The customer is (very important or marginally important).
A third part to analyzing the industry is to determine the degree to which barriers to entry exist. The following four questions deal with this variable:
11. What type of industry would have a high economy of scale in relation to marketing and advertising?
12. What type of industry would have a high economy of scale in relation to distribution channels?
13. What type of industry would have a high economy of scale in relation to manufacturing?
14. What type of industry would have a high economy of scale because of government policy and regulatory or patent requirements?
15. What type of industry would have a high economy of scale because of past behavior towards new entrants?
16. Broson Corporation has assets of $10,000, 000 on 12/31/2010 and debt of $2,000,000 on 12/31/2010. Using this simple example, what is Broson's stockholder's equity on 12/31/2010?
17. Broson Corporation beginning stockholder's equity is $1,000, 000on12/31/2009. Broson earns $2,000,000 during 2010 and pays a dividend of $500,000 during 2010. Using this simple example, what is Broson's ending stockholder's equity on 12/31/2010?
18. Broson Corporation generates $1,000, 000 in cash from operations during 2010. Bron uses $200,000 in cash during 2010 for investing activities and pays $500,000 out during 2010 for financing activities over the period (all cash flow statement classifications). Broson begins with $600,000 in cash on the 12/31/2009 balance sheet, using this simple example, what is Bron's ending cash balance on its 12/31/2010 balance sheet?
19. Cronon Corporation generates $1,000, 000 in ordinary income and $200,000 in a dirty surplus over the period. What is Cronon's comprehensive income for the period?
20. List and explain one item that is included in comprehensive income but not included in ordinary net income?
21. Cronon Corporation's stock increased from $20 to $30 over the period. Cronon has 1,000,000 shares outstanding. What is the market value added for Cronon Corporation?
22. Of the assets that are that are typically measured on the balance sheet, what assets are typically not carried at anything close to fair market value? Why?
23. What types of items have value for a corporation but are not typically measured at all on the balance sheet? (Goodwill and intangibles is not the answer - I need a more specific example)
24. A target company (that I am attempting to value) has earnings of $2. A very similar company has a price earnings ratio of 15. I take that 15 and multiply it by the $2 and get a value for the target company of $30. What valuation technique was illustrated in this simplified example?
25. I take all the near cash assets at face value. I then have all the plant property and equipment appraised by independent appraisers. I then add these two numbers together and subtract all liabilities at fair market value to get an equity value. I then divide this equity value by the number of shares outstanding to arrive at a value per share. What valuation technique did I just describe?
1. 20% of my product.
4. Marginally profitable
5. Very important
6. Few sellers
8. no close substitutes
10. very important
11. Mainframe computer industry
12. Retail industry
13. Automobile industry
14. Pharmaceutical industry
15. Telecom ...
The degree of buyer power is examined. What type of industry would have a high economy of scale in relation to manufacturing is determined.