CFA CFA Level 2 Question of the Week: Level 2 – Equity Valuation

Question of the Week: Level 2 – Equity Valuation

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    • MarkMeldrum
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      An analyst evaluates SD Cement Inc., a company operating in an emerging economy.  The analyst observes the following characteristics:

      • Low substitution costs
      • A fragmented industry
      • Large number of suppliers
      • Large customer base
      • Significant barriers to entry

      Which of the above characteristics is least likely to negatively affect the pricing power for SD Cement Inc.?

      • A. Low substitution costs.
      • B. A fragmented industry.
      • C. Significant barriers to entry.
    • excelmonkey
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      “Least likely to negatively affect..” 

      I spent 5 minutes re reading that trying to properly understand it. It’s exactly this kind of stuff that frustrates me about the CFA exam, they’re not testing your knowledge but your prowess at double negatives…

    • MarkMeldrum
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      The correct answer is Option C. 

      Significant barriers to entry into an industry give companies greater pricing power and better prospects for earnings growth.

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