An investor is comparing the first and second firms in an industry. The investor knows that...

An investor is comparing the first and second firms in an industry. The investor knows that usually the industry leader usually has the _______ while the second firm in the industry has the ________.

		higher net profit margin; higher debt ratio
		higher net profit margin; lower debt ratio
		lower net profit margin; higher debt ratio
		lower net profit margin; lower debt ratio

Expert Solution

Usually the industry leader is measured on the basis of market capitalization. It is not necessary that the industry leader should have the highest margin. Because to capture the market the company has to adopt penetration pricing strategy. Obvisouly, in order to capture the market (which is the yardstick to measure whether a company is leader or not) the company always concentrates on selling high volume. So usually the market leader would have a lower profit margin with highest market share.

Also in case of debt ratio, ideal ratio is said to be 2:1. When the debt in a company increases, though it has leverage benefits, the company may have to suffer in times of turbulence as debt is a fixed cost in the capital structure of a company. Hence company usually limit the use of debt. So the second leader in the industry would usually have lower debt ratio

Hence option D would be correct i.e leader has lower net margin and second firm has lower debt ratio

jeff jeffy answered 1 year ago

There are nine firms in industry X. The first firm’s sale is $300,000, the second firm’s...

There are nine firms in industry X. The first firm’s sale is $300,000, the second firm’s sale is $250,000, the third firm’s sale is $200,000, the fourth firm’s sale is $150,000. There are 5 other firms, each generates sales of $80,000. 1. Calculate two measures of concentration. 2. If the second and third firms merged together, recalculate the two measures of concentration and determine whether the merger caused a higher concentration or not?

You are comparing the common-size financial statements for two firms in the same industry that have...

You are comparing the common-size financial statements for two firms in the same industry that have very similar operations. You note that their sales revenues are similar in dollar value but yet the common-size EBIT for one firm is 30 percent compared to only 26 percent for the other firm. What are some possible explanations for this difference given the strong similarities of the two firms?

Two firms in the same industry sell their product at $10. The first firm has a...

Two firms in the same industry sell their product at $10. The first firm has a total fixed cost of $100 and an average variable cost of $6; whereas the corresponding values for the second firm are $300 and $3.33 respectively. (a) Compute the sales elasticity of profit (ie. the percent change in total profit when sales increase by 1%) for the two firms at the point where each sells 60 units and also at the point where each sells...

compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are inefficient...

compared with firms in a perfectly competitive industry, firms in a monopolistically competitive industry are inefficient because thery a. do not lower the product price if put prices fall b. waste resources by producing an excess amount of output c. restrict their output levels to maximiz profirs d make economic profits in the long run. which of the following statement is true about a firm in a perfectly competitive market a. the demand for its product is a downward sloping...

CiliBank knows there are well managed and badly managed firms that it can lend to. It...

CiliBank knows there are well managed and badly managed firms that it can lend to. It knows that well managed companies enjoy good financial health and are relatively low risk. The appropriate premium over the risk- free rate for lending to these firms is 1.5% Badly managed firms are in poor financial health and are relatively high risk. The appropriate premium over the risk-free rate for lending to these firms is 4%. The problem is that, before the lending contract...

1.) First answer = first blank; second answer = second blank. The test statistic for an...

1.) First answer = first blank; second answer = second blank. The test statistic for an ANOVA is a ratio of values and is noted by (F). In independent- measures ANOVAs, ________ comprises the numerator of this ratio, whereas ________ comprises the denominator of this ratio. A: systematic treatment effects and unsystematic effects; unsystematic effects B: systematic treatment effects; unsystematic effects C: unsystematic effects; systematic effects and unsystematic effects D: unsystematic effects; systematic effects 3.) Please select all that apply....

Two firms Alphabet and Beta are in an industry. These firms will operate as a duopoly,...

Two firms Alphabet and Beta are in an industry. These firms will operate as a duopoly, the cost functions of the two firms are: C1(q1) = 60+30q1 and C2(q2)= 30+ 36q2. The firms have a linear market demand curve P(Q) = 150-15Q where Q=q1+q2 is the total output level. Find and draw the firms reaction, best response curves and find and show the Nash equilibrium of the Cournot game when the firms compete simultaneously. What is each firm's equilibrium output...

There are two firms in an industry. The industry demand is given by P = 84...

There are two firms in an industry. The industry demand is given by P = 84 - Q, where Q is the total output of the two firms. The follower has a marginal cost of $0, and the leader has a marginal cost of $21. What are the equilibrium prices and outputs of the two firms under a) Perfect competition; b) Bertrand duopoly; c) Cournot duopoly; d) Stackelberg duopoly?

1. Here is a link to a data set comparing proficiency in a second language to...

1. Here is a link to a data set comparing proficiency in a second language to the density of grey matter in the human brain. What is the correlation coefficient for these data? Use either the =correl(array1,array2) formul in excel, or the correlation feature in the Data Analysis ToolPak Add-in for Excel to determine the correlation coefficient. Report your answer to four decimal places. Subject 2nd Language Proficiency Grey Matter Density 1 0.26 -0.07 2 0.44 -0.08 3 0.89 -0.008...

Two firms, A and B, compete as duopolists in an industry. The firms produce a homogeneous...

Two firms, A and B, compete as duopolists in an industry. The firms produce a homogeneous good. Each firm has a cost function given by: C(q) = 30q + 1.5q2 The (inverse) market demand for the product can be written as: P =300−3Q, where Q = q1 + q2, total output. (a) If each firm acts to maximize its profits, taking its rival’s output as given (i.e., the firms behave as Cournot oligopolists), what will be the equilibrium quantities selected...

Question