Midterm_2009S_sol - March 12, 2009 AEM 428 Valuation...

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March 12, 2009 AEM 428 Valuation Midterm Exam 1 hour 15 minutes Part I (20 Points). Multiple choice, 5 questions, 4 points each. 1. Short interest is a. Borrowing Interest of short sellers b. Investors are interested in short selling c. The ratio of number of shares shorted to total number shares outstanding d. Holding interest of short sellers’ collateral 2. Who dislike the short sellers? a. Long seller b. SEC c. Managers of the firm d. Brokers 3. Which of the following sections from the Statement of Cash Flows would describe funds used to purchase property, plant, and equipment? a. Cash flow from operations b. Cash flow from investing activities c. Cash flow from financing activities d. 4. Free cash flow represents the cash amount that a firm could distribute to __________. a. Bondholders b. Common stockholders c. Preferred shareholders d. All of the above e. None of the above 5. In accrual basis accounting, a. Expenses are recorded even before the service they represent is agreed upon b. Expenses are recorded even before they are incurred c. Expenses are recorded even before they are paid d. Expenses are recorded only after they are paid e. All of the above Part II (20 Points). Short questions, 4 questions, 5 points each. 1. What are the differences between Edwards-Bell-Ohlson EBO valuation model and Stern Stewart EVA valuation model? EBO model forecasts residual income for share holders while EVA model forecasts residual income for the whole firm. EBO model discounts residual earnings with cost of equity while EVA discounts residual earnings with WACC. It is also fine if you list the two equations. 1
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March 12, 2009 2. Following are selected ratios for two companies, Dallas Oil and Gas Exploration Corp. and Friendly Food Co. Which set of ratios belongs to Dallas? Company A
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This note was uploaded on 09/23/2009 for the course AEM 4280 taught by Professor Ng,d. during the Spring '08 term at Cornell University (Engineering School).

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Midterm_2009S_sol - March 12, 2009 AEM 428 Valuation...

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