Corrections to Applied Corporate Finance: A User’s Manual (First Printing)

If you have the second printing, these errors should have been fixed

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Corrected version
89
bL = bu (1+ (1-t)(D/E)) - bD (D/E) bL = bu (1+ (1-t)(D/E)) - bD (1-t) (D/E)
88,94,96
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

98
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

156
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)

205
Call Value = 100 (0.7915) - 150 exp(-.05)(10)(0.3460) = $ 52.5 million

..

NPV of Project with Option to Expand = - $20 million + $ 52.5 mill

= $32.5 million

Call Value = 100 (0.7717) -150 exp(-.05)(10)(0.3992) = $ 45.9 million

..

NPV of Project with Option to Expand = - $20 million + $ 45.9 mill

= $ 25.9 million

208

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)

218
Dilution Adjusted S = (S ns + W nW) (ns + nw)
Dilution Adjusted S = S + (nw/ns) W
314
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%)
In table 9.4, for instance, increasing the dividend payout ratio to 50% results in a debt ratio of 11.42% at the end of the fifth year (instead of 9.06%)
316
Note that the debt ratio increases to 25.04% by the end of year 5.
Note that the debt ratio increases to 27.09% by the end of year 5.
338
Change in Firm Value = 0.31 + 1.71 (GNP growth)
Change in Firm Value = 0.31 - 1.71 (GNP growth)
458
FCFE = Net Income + (1-d) (Capital Expenditures - Depreciation) + (1-d) (D Working Capital)
FCFE = Net Income - (1-d) (Capital Expenditures - Depreciation) - (1-d) (D Working Capital)
467
Retention Ratio * ROE = 0.65% *

….

 

Retention Ratio * ROE = 0.65 *

….

472
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

13,539(1.05)(1-.36) - $13,539(1.05)(1-.36)(.3125) = $6,255 million

….

Revenues: Continues to grow but at declining rate

478
V0/FCFF = 1/(ke - gn) V0/FCFF = 1/(kc - gn)