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Exam Code: CISM

Exam Name: Certified Information Security Manager

Certification Provider: ISACA

Related Certification: Certified Information Security Manager

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NEW QUESTION: 1
Rogcrt Markets is the nation's third largest retail grocery chain, and usually has the largest or second largest market share in every city in which it competes. In its most successful large cities, Rogert has as much as a 25% market share, although its share is sometimes greater in small cities. Rogert is known for its excellent customer service and has a wide variety of grocery selections in almost every part of its stores. Its profit margins on sales are slightly above industry averages, and its return on assets and return on equity are above average.
Rogert has an equity beta of 0.78 and a debt-to-capital ratio of approximately 50%. Recent economic difficulties, including higher commodity prices and higher unemployment, resulted in lower profit margins for Rogert. Still, Rogert's decline in profit margin was less than for its competitors. Rogert did not experience substantial losses of sales from customers switching to lower-priced competitors as its market share remained substantially constant.
Zephine Markets is one of Rogert's smaller competitors. Zephine operates in roughly 15% of the same cities as Roger. Zephine is publicly traded, and one of the members of Rogert's board of directors has asked the staff to evaluate an acquisition of Zephine. The staff believes that Zephine is slightly underpriced and that it could be acquired for a 20% premium over its current price. In recommending against the acquisition, staff member Pierre Chiraq says:
"I agree that eliminating Zephine as a rival would probably enhance our profit margins. However, I am skeptical about this acquisition. First, because our market share is almost never dominant, much of the benefit of eliminating a smaller rival will be shared by our other rivals. They will free-ride on our investment.
Second, if our profit margins do increase, wc will eventually attract new rivals into our markets. And finally, our cost of capital should increase substantially because the firm will be diversifying horizontally instead of vertically, increasing the firm's risk." Over the last several years, grocery industry growth has tended to follow the general economy. The competitors in the industry, like Rogert, compete for market share in a stable industry. The industry's cyclical behavior has shown stable performance in both the ups and downs of the business cycle.
In assessing Rogert's competitive position, Chiraq makes comments about the threat of new entrants:
"My concern about new entrants into our business is low for several reasons. Economies of scale are achievable at a low size of operations relative to that of our firm. Our brand identity is high in the markets in which we compete. And, finally, access to distribution channels is difficult to achieve in the grocery business. While there are many competitive forces that concern mc, new entrants is low on my list." Finally, the staff discusses industry changes that might have a negative effect on Rogert's industry position. Three phenomena are mentioned that could have such an effect. They are:
1. Industry growth rates are low and declining;
2. Several suppliers are sponsoring national television advertisements for their products;
3. The government has approved a new method of extending the shelf life of fruits and vegetables.
Which of Chiraq's reasons for opposing the acquisition of Zephiue Markets is least likely to be correct?
A. The cost of capital argument.
B. The risk of new rivals argument.
C. The free-rider argument.
Answer: A
Explanation:
Explanation/Reference:
Explanation:
The first two arguments are plausible. If Rogert had a dominant market share, such as 80%, eliminating a smaller rival would cause the benefits to accrue mostly to Rogert. But in this case, much of the benefits would accrue to other rivals (they would be free riders). Increasing the profit margins in some markets would likely attract new rivals in the future. The cost of capital argument is weak. Acquisitions in the grocery business, an industry in which Rogert has considerable competence and success, is not especially risky. A vertical merger (into new and different industries) would be more likely to increase risks and the cost of capital. (Study Session 11, LOS 37.d)

NEW QUESTION: 2
True or False: When multiple teams work together on the same product, each team should maintain a separate Product Backlog.
A. False
B. True
Answer: A

NEW QUESTION: 3

Refer to the exhibit. A customer is determining whether a Windows 7 laptop is operating on the correct IEEE
802.11 standard. Which standard is being used by the laptop in the exhibit?
A. 802.11n
B. 802.11p
C. 802.11g
D. 802.11b
Answer: A


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