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Question: Mary Smith, a CFA candidate, was recently

Mary Smith, a CFA candidate, was recently hired for an analyst position at a large bank in London. Her first assignment is to examine the competitive strategies employed by various French wineries. Smith’s report identifies four wineries that are the major players in the French wine industry. Key characteristics of each are cited in Table 17A. In the body of Smith’s report, she includes a discussion of the competitive structure of the French wine industry. She notes that over the past five years, the French wine industry has not responded to changing consumer tastes. Profit margins have declined steadily, and the number of firms representing the industry has decreased from 10 to 4. It appears that participants in the French wine industry must consolidate in order to survive. Smith’s report notes that French consumers have strong bargaining power over the industry. She supports this conclusion with five key points, which she labels “Bargaining Power of Buyers”: ∙ Many consumers are drinking more beer than wine with meals and at social occasions. ∙ Increasing sales over the Internet have allowed consumers to better research the wines, read opinions from other customers, and identify which producers have the best prices. ∙ The French wine industry is consolidating and consists of only 4 wineries today compared to 10 wineries five years ago. ∙ More than 65% of the business for the French wine industry consists of purchases from restaurants. Restaurants typically make purchases in bulk, buying four to five cases of wine at a time. ∙ Land where the soil is fertile enough to grow grapes necessary for the wine production process is scarce in France. After completing the first draft of her report, Smith takes it to her boss, Ron VanDriesen, to review. VanDriesen tells her that he is a wine connoisseur himself and often makes purchases from the South Winery. Smith tells VanDriesen, “In my report I have classified the South Winery as a stuck-in-themiddle firm. It tries to be a cost leader by selling its wine at a price that is slightly below the other firms, but it also tries to differentiate itself from its competitors by producing wine in bottles with curved necks, which increases its cost structure. The end result is that the South Winery’s profit margin gets squeezed from both sides.” VanDriesen replies, “I have met members of the management team from the South Winery at a couple of the wine conventions I have attended. I believe that the South Winery could succeed at following both a cost leadership and a differentiation strategy if its operations were separated into distinct operating units, with each unit pursuing a different competitive strategy.” Smith makes a note to do more research on generic competitive strategies to verify VanDriesen’s assertions before publishing the final draft of her report.
Mary Smith, a CFA candidate, was recently hired for an analyst position at a large bank in London. Her first assignment is to examine the competitive strategies employed by various French wineries.
Smith’s report identifies four wineries that are the major players in the French wine industry. Key characteristics of each are cited in Table 17A. In the body of Smith’s report, she includes a discussion of the competitive structure of the French wine industry. She notes that over the past five years, the French wine industry has not responded to changing consumer tastes. Profit margins have declined steadily, and the number of firms representing the industry has decreased from 10 to 4. It appears that participants in the French wine industry must consolidate in order to survive.
Smith’s report notes that French consumers have strong bargaining power over the industry. She supports this conclusion with five key points, which she labels “Bargaining Power of Buyers”:
 ∙ Many consumers are drinking more beer than wine with meals and at social occasions.
∙ Increasing sales over the Internet have allowed consumers to better research the wines, read opinions from other customers, and identify which producers have the best prices.
∙ The French wine industry is consolidating and consists of only 4 wineries today compared to 10 wineries five years ago.
∙ More than 65% of the business for the French wine industry consists of purchases from restaurants. Restaurants typically make purchases in bulk, buying four to five cases of wine at a time.
∙ Land where the soil is fertile enough to grow grapes necessary for the wine production process is scarce in France.
After completing the first draft of her report, Smith takes it to her boss, Ron VanDriesen, to review. VanDriesen tells her that he is a wine connoisseur himself and often makes purchases from the South Winery. Smith tells VanDriesen, “In my report I have classified the South Winery as a stuck-in-themiddle firm. It tries to be a cost leader by selling its wine at a price that is slightly below the other firms, but it also tries to differentiate itself from its competitors by producing wine in bottles with curved necks, which increases its cost structure. The end result is that the South Winery’s profit margin gets squeezed from both sides.” VanDriesen replies, “I have met members of the management team from the South Winery at a couple of the wine conventions I have attended. I believe that the South Winery could succeed at following both a cost leadership and a differentiation strategy if its operations were separated into distinct operating units, with each unit pursuing a different competitive strategy.” Smith makes a note to do more research on generic competitive strategies to verify VanDriesen’s assertions before publishing the final draft of her report.
Smith knows that a firm’s generic strategy should be the centerpiece of a firm’s strategic plan. On the basis of a compilation of research and documents, Smith makes three observations about the North Winery and its strategic planning process:
i. North Winery’s price and cost forecasts account for future changes in the structure of the French wine industry.
ii. North Winery places each of its business units into one of three categories: build, hold, or harvest.
iii. North Winery uses market share as the key measure of its competitive position.
 Which observation(s) least support(s) the conclusion that the North Winery’s strategic planning process is guided and informed by its generic competitive strategy?

Smith knows that a firm’s generic strategy should be the centerpiece of a firm’s strategic plan. On the basis of a compilation of research and documents, Smith makes three observations about the North Winery and its strategic planning process: i. North Winery’s price and cost forecasts account for future changes in the structure of the French wine industry. ii. North Winery places each of its business units into one of three categories: build, hold, or harvest. iii. North Winery uses market share as the key measure of its competitive position. Which observation(s) least support(s) the conclusion that the North Winery’s strategic planning process is guided and informed by its generic competitive strategy?



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> In this problem, we derive the put-call parity relationship for European options on stocks that pay dividends before option expiration. For simplicity, assume that the stock makes one dividend payment of $D per share at the expiration date of the option.

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> What is the major difference between the approach of international financial reporting standards versus U.S. GAAP accounting? What are the advantages and disadvantages of each?

> Consider the following data for the firms Acme and Apex: a. Which firm has the higher economic value added? b. Which firm has the higher economic value added per dollar of invested capital?

> Use the financial statements of Heifer Sports Inc. in Table 19A to find the following information for Heifer’s: a. Inventory turnover ratio in 2020. b. Debt/equity ratio in 2020. c. Cash flow from operating activities in 2020. d. Avera

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> In what circumstances is it most important to use multistage dividend discount models rather than constant-growth models?

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> The Digital Electronic Quotation System (DEQS) Corporation pays no cash dividends currently and is not expected to for the next five years. Its latest EPS was $10, all of which was reinvested in the company. The firm’s expected ROE for the next five year

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> Mary Smith, a CFA candidate, was recently hired for an analyst position at a large bank in London. Her first assignment is to examine the competitive strategies employed by various French wineries. Smith’s report identifies four winerie

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> Mary Smith, a CFA candidate, was recently hired for an analyst position at a large bank in London. Her first assignment is to examine the competitive strategies employed by various French wineries. Smith’s report identifies four winerie

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> What characteristics will give firms greater sensitivity to business cycles?

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> If a security is underpriced (i.e., intrinsic value > price), then what is the relationship between its market capitalization rate and its expected rate of return?

> The difference between a Roth IRA and a traditional IRA is that in a Roth IRA taxes are paid on the income that is contributed, but the withdrawals at retirement are tax-free. In a traditional IRA, however, the contributions reduce your taxable income, b

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> Is statistical arbitrage true arbitrage? Explain.

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> Which of the following is most accurate in describing the problems of survivorship bias and backfill bias in the performance evaluation of hedge funds? a. Survivorship bias and backfill bias both result in upwardly biased hedge fund index returns. b. Sur

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> How might the incentive fee of a hedge fund affect the manager’s proclivity to take on high-risk assets in the portfolio?

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> Return again to Problem 14. Now suppose that the manager misestimates the beta of Waterworks stock, believing it to be .50 instead of .75. The standard deviation of the monthly market rate of return is 5%. a. What is the standard deviation of the (now im

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> Suppose a hedge fund follows the following strategy. Each month it holds $100 million of an S&P 500 index fund and writes out-of-the-money put options on $100 million of the index with exercise price 5% lower than the current value of the index. Suppose

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