Exam (elaborations)

Solutions For Financial Reporting, Financial Statement Analysis and Valuation, 10th Edition Wahlen

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Complete Solutions Manual for Financial Reporting, Financial Statement Analysis and Valuation, 10th Edition by James M. Wahlen, Stephen P. Baginski, Mark Bradshaw ; ISBN13: 9780357722091. Full Chapters included Chapter 1 to 14, Exercises / Problems and Teaching Notes to Cases included. 1. Overview...

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Uploaded on November 26, 2023
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financial statement
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Financial Reporting, Financial
Statement Analysis and Valuation,
10th Edition
by James M. Wahlen

Complete Chapter Solutions Manual
are included (Ch 1 to 14)

** Immediate Download
** Swift Response
** All Chapters included
** Exercises / Problems
** Teaching Notes to Cases

, CHAPTER 1

OVERVIEW OF FINANCIAL REPORTING, FINANCIAL
STATEMENT ANALYSIS, AND VALUATION
Solutions to Questions, Exercises, Problems, and Teaching Notes to Cases

1.1 Porter’s Five Forces Applied to the Air Courier Industry.

Buyer Power. Air courier services are a commodity. Firms in the industry offer
similar overnight or two-day deliveries. Firms also provide opportunities to track
shipments. Business customers can negotiate favorable shipping terms based on the
volume of shipments. Thus, buyer power among large corporate customers is high.

Supplier Power. The principal inputs are labor services, equipment, and
information systems. Except for pilots and some information-processing specialists,
the skill required to offer air courier services is relatively low. Therefore,
competition for jobs reduces supplier power. The principal items of equipment are
airplanes, trucks, and sorting equipment. The number of suppliers of this equipment
is relatively small, but the equipment offered is largely a commodity. Thus,
equipment supplier power is relatively low. Information systems are critical to
scheduling, tracking, and delivering parcels. Hiring individuals with the education
and skills needed to design and maintain this information system is not difficult
because these skills and education are not unique. Thus, supplier power is low.

Rivalry among Existing Firms. Seven air couriers now carry a 90% market share.
FedEx and UPS have the largest market shares and compete heavily. Smaller firms
compete more in particular geographical or customer markets. Thus, rivalry is
relatively high.

Threat of New Entrants. The cost of acquiring equipment, developing national
and international delivery networks, and overcoming entrenched firms in an
already-crowded market makes the threat of new entrants low.

Threat of Substitutes. The main threat to transportation of letter parcels is digital
transmission, and that threat is high. The threat of substitutes for transportation of
packages is low.

1.2 Economic Attributes Framework Applied to the Specialty Retailing Apparel
Industry.

Demand. Firms attempt to compete on design, colors, and other product attributes,
but apparel is largely a commodity. Demand is somewhat cyclical with economic

1-1

, Chapter 1
Overview of Financial Reporting, Financial
Statement Analysis, and Valuation

conditions; customers tend to delay purchases or trade down during economic
downturns. Demand is seasonal within the year. Demand grows at the growth rate
in population, which suggests that apparel retailing is a relatively mature market. To
the extent that retailers can generate customer loyalty, demand is not highly price-
sensitive. However, given the similarity of product offerings across firms, firms
cannot price their goods too much out of line with those of their competitors.

Supply. In most markets, there are many firms selling similar apparel. The barriers
to entry are not particularly high because an apparel line and retail space are the
most important ingredients.

Manufacturing. The manufacturing process is labor-intensive. The manufacturing
process is relatively simple, and firms source their apparel from Asia, which has
low wages.

Marketing. Because of the large number of suppliers selling similar products,
apparel-retail firms must stimulate demand with attractive store layouts, colorful
product offerings, and various sales promotions.

Investing and Financing. Firms must finance inventory, usually with a
combination of supplier and bank financing. The risk of inventory obsolescence is
somewhat high if the product offerings in a particular season do not sell. Firms tend
to rent retail space in shopping malls, so they need to engage in extensive long-term
borrowing.

1.3 Identification of Commodity Businesses.

Dell. Dell’s products—computers, servers, and printers—are commodities. Dell
tends not to develop the technologies underlying these products. Instead, it
purchases the components from firms that develop the technologies
(semiconductors and computer software). Dell’s direct-to-customer marketing
strategy is not unique, but the extent to which Dell performs this strategy better than
anyone else in the industry gives it a competitive advantage. Its size, purchasing
power, quality control, and efficiency permit it to operate as a low-cost provider.

Southwest Airlines. Airline transportation is a commodity service in the sense that
seats on one airline cannot be differentiated from seats on another airline.
Southwest Airlines’ strategy is to be the lowest-cost provider of such services,
thereby differentiating itself on low prices.

Microsoft. The basic idea of a commodity product is that the product offerings of
one firm are so similar to those of other firms that customers can easily switch to
competitors’ products if price becomes an issue. The technological attributes of

1-2

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