Corrections to Applied Corporate Finance: A User’s Manual (First Printing)
If you have the second printing, these errors should have been fixed




b_{L} = b_{u} (1+ (1t)(D/E))  b_{D} (D/E)  b_{L} = b_{u} (1+ (1t)(D/E))  b_{D} (1t) (D/E) 

Levered/Unlevered Beta formula
missing end brackets
Eg: = 1.40/(1+(1.36)(0.14) = 1.2849 
Levered/Unlevered beta formula
add end brackets
Eg: = 1.40/(1+(1.36)(0.14)) = 1.2849 

Bookscape Earnings Change
= 0.085 + 1.11 (S&P 500 Earnings Change)
Based upon this regression, the beta for Bookscape is 1.11 
Bookscape Earnings Change
= 0.09 + 0.80 (S&P 500 Earnings Change)
Based upon this regression, the beta for Bookscape is 0.80. 
135 
2. The revenues in the first year are expected to be $1.5 billion, growing 20% in year 2, and 10% in the two years following. 3. The salaries and other benefits for teh employees are... and to grow 20% a year for the following three years. 4. The cost of the books.... in each of the four years. 
2. The revenues in the first year are expected to be $1.5 billion, growing 20% in year 2, 10% in the year following and 5% in year 4. 3. The salaries and other benefits for the employees are... and to grow 10% a year for the following three years. 4. The cost of the books.... in each of the four years. Other expenses are $150,000 in year 1, and are expected to grow at the same rate as revenues 

Economic Value Added (EVA)
= (Return on Capital X Cost of Capital) (Capital Invested)
Equity EVA = (Return on Equity X Cost of Equity) (Equity Invested) 
Economic Value Added (EVA)
= (Return on Capital  Cost of Capital) (Capital Invested)
Equity EVA = (Return on Equity  Cost of Equity) (Equity Invested) 

.. NPV of Project with Option to Expand =  $20 million + $ 52.5 mill = $32.5 million 
.. NPV of Project with Option to Expand =  $20 million + $ 45.9 mill = $ 25.9 million 

Call Value = 254 exp (.04)(5)(0.9105)  150 exp (.07)(5) (.7496) Put Value = $110.12  254 (.04)(5) + 150 exp (.07)(5) 
Call Value = 254 exp (.04)(5)(0.9105)  150 exp (.07)5) (.7496) Put Value = $110.12  254(.04)(5) + 150 exp (.07)(5) 




In table 9.4, for instance, increasing the dividend payout ratio to 50% results in a debt ratio of 9.67% at the end of the fifth year (instead of 7.23%) 


Note that the debt ratio increases to 25.04% by the end of year 5. 








Retention Ratio * ROE = 0.65%
*
….

Retention Ratio * ROE = 0.65
*
…. 

13,539(1.05)(1.36) + $13,539(1.05)(1.36)(.3125)
= $6,255 million
…. Revenues: Continues to gro at same rate as operating earnings 
…. Revenues: Continues to grow but at declining rate 

V_{0}/FCFF = 1/(k_{e}  g_{n})  V_{0}/FCFF = 1/(k_{c}  g_{n}) 