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

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

 Page # In book 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)