FSA-Chapter 2

Poll

Threat of New Entrants

• High

• Moderate

• Low

Poll

Bargaining power of suppliers

• High

• Moderate

• Low

Poll

Bargaining power of buyers

• High

• Moderate

• Low

Poll

Threat of substitutes

• High

• Moderate

• Low

Poll

Industry Rivalry

• High

• Moderate

• Low

Multiple Choice

• Person A : Earns $50k.

• Person B : Earns $200k.

• So Person B earns 4 times as much as Person A ($200k vs $50k), so should be about 4 times as rich, right?

• True

• False

Operating Leverage & Margin Analysis

What if both person spends 30K per year.
Person A Keeps: $20k ($50k - $30k)

Person B Keeps: $170k ($200k - $30k)

The Difference: $170k / $20k = 8.5 times!
Because looking at raw dollars hides the power of fixed costs. This is why we use Common Size Statements.

Operating Leverage & Margin Analysis

• Person A: Expenses are 60% of their revenue ($30k/$50k).

• Person B: Expenses are only 15% of their revenue ($30k/$200k).

• Conclusion: Common size allows us to compare the burden of expenses. For Person A, the expense is a crushing weight (60%). For Person B, the exact same expense is light (15%). Comparability isn't just about dollars; it's about impact.

Operating Leverage & Margin Analysis

• Both people get a surprise bill for $5,000 (car repair). In dollar amounts, the bill is identical. But using Common Size analysis, why is this bill a 'disaster' for one and a 'minor annoyance' for the other?

Multiple Choice

Which of the following are not allowed by GAAP regarding the accounting method Choice?

• Changing from LIFO to FIFO.

• Changing from Straight Line to DDB

• Capitalize to Expense R&D.

• Bad Debt Directly Write Off

Multiple Choice

Grocery Store like Walmart normally use what inventory method?

• LIFO

• FIFO

• Weighted Average

• Special identification

Multiple Choice

Oil Company like Exxon normally use what inventory method?

• LIFO

• FIFO

• Weighted Average

• Special identification

Open Ended

What Company or industry use special identification method to value its inventory.

Multiple Choice

Analysts often differ in their valuation of Tesla. Some focus on high-growth potential (optimistic outlook), while others emphasize risks like overvaluation and competition (pessimistic outlook). This is an example of?

• Information Subjectivity

• Information Asymmetry

Multiple Choice

During a sale or refinancing, buyers, sellers, and banks may each commission different appraisals, often leading to conflicting valuations that complicate negotiations.

• Information Subjectivity

• Information Asymmetry

Multiple Choice

Buyers prefer to purchase cars from Car Dealership like CARMAX instead of individual sellers because of ____?

• Information Subjectivity

• Information Asymmetry