Fin. 550 week 6 homework



Chapter 12: Problems 4(a-d), 7(a-b), 8(a-b)

Chapter 13: Problems 4, 5, 7(a-c)


For 12-7, I have attached an Excel spreadsheet for your review.  Please see the comments that I have made in different cells.

The questions in Chapter 13 are referred to as open-ended questions. There is no right or wrong answer, just different levels of quality. The topic of the chapter is Industry Analysis, which obviously is designed to help you understand different industries. As a part of this analysis, you are to select an industry.  The industry is your choice. In the past, students have elected to analyze the industry in which they are employed, which often is a real eye-opener for them.

Question 4 asks you to analyze your industry in terms of the five factors that determine the industry competition. This is an analysis of Porter’s Five Factors. Porter’s Five Factors is a well known concept, so you should have no problem with this.

Question 5 asks you to use the Standard and Poor’s Analysts’ Handbook to plot the 10 years of the S&P operating profit margin and then compare this to the operating profit margin of your industry; however, the Analysts’ Handbook doesn’t exist anymore, so you will have to find another source. There are other sources out there, such as:

I also provided an Excel file that was produced by the Stern School of Business at NYU. This has a lot of data that will be useful. 

Between these three sources, and others you will find, you can get a good feel for the correlation between the operating profit margins of your industry versus the S&P 500

Regarding question 7 – don’t over-complicate this. You are to start by preparing a table of variables that influence the earnings multiplier. There are several variables, such as earning retention rate, dividend payout ratio, growth rate, etc. Just come up with variables that influence your earnings multiplier. Then answer the three questions, which are pretty straight forward. For example, in section “a,” is your dividend payout ratio different from the S&P or other industries? If so, why? Is the risk different than other industries? 

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