{"id":17275,"date":"2023-01-13T09:57:41","date_gmt":"2023-01-13T09:57:41","guid":{"rendered":"https:\/\/analystprep.com\/study-notes\/?p=17275"},"modified":"2024-04-04T11:21:59","modified_gmt":"2024-04-04T11:21:59","slug":"technological-developments","status":"publish","type":"post","link":"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/financial-reporting-and-analysis-fra\/technological-developments\/","title":{"rendered":"Effects of Technological Developments on Demand, Selling Prices, Costs, and Margins"},"content":{"rendered":"<iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/M-Yp1rD9Kf0\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\r\n\r\n\r\n<p>Businesses and industries are affected by technological developments. It is, however, impossible to quantify these impacts without making assumptions about the future. These assumptions should be evaluated using scenario and sensitivity analysis to develop a range of earnings outcomes.<\/p>\r\n<p>There are instances in which technological advancement results in a new product that cannibalizes the demand for existing products. In such a case, a new demand forecast for the new product, combined with an expected cannibalization factor, is used to approximate the impact on future demand for the existing product.<\/p>\r\n<p>It&#8217;s equally noteworthy that technological developments can affect the demand and supply of a product. The supply curve will move to the right if innovation results in lower manufacturing costs. Suppose innovation results in the development of better, more attractive products, demand for existing products will shift to the left.<\/p>\r\n<blockquote>\r\n<h2>Question<\/h2>\r\n<p>Which of the following factors would <em>most likely<\/em> be used to evaluate the impact of new products on existing products\u2019 demand?<\/p>\r\n<ol style=\"list-style-type: upper-alpha;\">\r\n\t<li>Cannibalization factor.<\/li>\r\n\t<li>Sensitivity analysis.<\/li>\r\n\t<li>Scenario analysis.<\/li>\r\n<\/ol>\r\n<h4>Solution<\/h4>\r\n<p><strong>The correct answer is A<\/strong>.<\/p>\r\n<p>The cannibalization factor is used to evaluate the impact of a new product on the future demand for an existing product. It quantifies a new product&#8217;s impact on an existing product&#8217;s sales.<\/p>\r\n<p><strong>B is incorrect<\/strong>.\u00a0Sensitivity analysis is a tool that involves changing only one assumption at a time to determine its effect on the estimate of the intrinsic value.<\/p>\r\n<p><strong>C is incorrect<\/strong>. Scenario analysis is a tool that involves changing multiple assumptions simultaneously to determine their effect on the estimate of the intrinsic value.<\/p>\r\n<\/blockquote>\r\n<p>Reading 17: Financial Statement Modeling<\/p>\r\n<p><em>LOS 17 (l) Evaluate the effects of technological developments on demand, selling prices, costs, and margins.<\/em><\/p>\r\n","protected":false},"excerpt":{"rendered":"Businesses and industries are affected by technological developments. It is, however, impossible to quantify these impacts without making assumptions about the future. These assumptions should be evaluated using scenario and sensitivity analysis to develop a range of earnings outcomes. There...","protected":false},"author":5,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[102,312],"tags":[216,402,429,436],"class_list":["post-17275","post","type-post","status-publish","format-standard","hentry","category-cfa-level-2","category-financial-reporting-and-analysis-fra","tag-cfa-level-2","tag-equity-valuation","tag-reading-26-industry-and-company-analysis","tag-technological-developments","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Effects of Technological Developments on Demand, Selling Prices, Costs, and Margins - CFA, FRM, and Actuarial Exams Study Notes<\/title>\n<meta name=\"description\" content=\"Learn about the use of scenario and sensitivity analysis to assess the impact of technological advancements in financial statement modeling.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/analystprep.com\/study-notes\/cfa-level-2\/financial-reporting-and-analysis-fra\/technological-developments\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Effects of Technological Developments on Demand, Selling Prices, Costs, and Margins - 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