FIN 3321 Test #1

According to classical financial theory, the objective of the firm's management should be:

Maximize shareholders wealth

Aggressive accounting policies (choices) lead to lower earnings and higher assets (T/F)

False

Which of the following is correct regarding accrual accounting?

Attempts to measure economic activities in the period exchange transactions take place, regardless of when cash flows transpire

The independent auditors opinion and statement on the 10-K guarantee the information contained in the financial reports are correct (T/F)

False

The information contained in financial reports reflect "people-made" numbers and choices that may contain material errors and biases (T/F)

True

The information contained in audited financial reports are unquestioned facts because GAAP and the SEC required perfect information to be contained in 10-K's (T/F)

False

Competitive Positioning is part of which main element in Figure 1-2?

Business Strategy

What elements does Figure 1-2 contain?

Business environment, Business activities, Business strategy, Accounting environment, Accounting system, Accounting strategy, Financial statements

Which is the THIRD step in a structured equity security analysis and valuation?

Financial analysis

Which is the FOURTH step in a structured equity security analysis and valuation project?

Prospective analysis

Which is the FIRST step in a structured equity security analysis and valuation project?

Business strategy analysis

Which is the SECOND step in a structured equity security analysis and valuation project?

Accounting analysis

What is the proper sequence in which following items would be presented on the income statement?

Net revenue
Gross profit
Operating income
Net income
Comprehensive Income

Which of the following models, theorems or hypothesis, if absolutely true in the real world, would make the activities of information production or financial analysis a socially and economically non-productive activities?

Weak form efficient market hypothesis

Identify three relevant competitors your group is using for industry benchmarks:

PVH Corp.
Ralph Lauren Corporation
Perry Ellis International Inc.

Which of the following would lead to a mixed degree of industry price competition? ***

High industry concentration
Low fixed variable cost ratio
Low product differentiation

How do you find total amount Acquire paid for Target?

Targets assets - Targets liabilities = Net assets
Net assets + goodwill = Total amount paid

Rivalry among existing firms (high/low/mixed)

High
- Low switching costs
- Fragmented industry

Threat of new entrants (H/L/M)

Low
- High brand recognition
- First mover advantage

Threat of substitutes (H/L/M)

Mixed
- H: consumers willingness to switch to another brand
- L: no substitute for clothing as a whole

Bargaining power of suppliers (H/L/M)

Low
- Low switching costs
- Excess amount of suppliers

Bargaining power of buyers (H/L/M)

Low
- High product differentiation
- High brand recognition

5 specific value drivers for the industry analyzed

Product differentiation
Brand recognition
Managing product quality
Attention to customers
Optimizing inventory

An industry having a high degree of price competition would be characterized by:

Supply > Demand
Low first mover advantage
High variable cost ratio
Few legal barriers to entry
Low concentration

Which of the following would lead to the lowest degree of industry price competition?

Few exit barriers
High first mover advantage
High product differentiation

What is included under Business Strategy in figure 1-2?

Scope of business
Competitive positioning
Key success factors and risks

High growth rate (few legal barriers to entry) =

Low competition

Low growth rate (high legal barriers to entry) =

High competition

Fragmented (low concentration) =

High competition

Low concentration =

High competition

Low differentiation =

High competition

High differentiation =

Low competition

High fixed variable =

High competition

Low fixed variable =

Low competition

High exit barriers =

High competition

Low exit barriers =

Low competition

Supply > Demand =

High competition

Supply < Demand =

Low competition

High first mover advantage =

Low competition

Determining whether the firm currently has the resources and capabilities to deal with the identified key success factors is an example of which?

Analysis of the Degree of Actual and Potential Competition

Which of the following does not necessarily create corporate value?

Good allocation of decision rights between the headquarters office and the business units to realize all the potential economies of scope.