Corrections in the Book

Contents Page 2: Chapter 3

Page 11 (Near the middle) : Inflation Expectation

Page 41. PVAi,n = 1 ................... as t goes from 1 to n

Page 42. Exercise first line. Problem # 18. 3rd line: Problem # 19.

Page 43. In the box under present values: Taka 27,522.94

Page 44. Infinity sign

Page 47: EAR = e0.12 – 1 = .1275 or 12.75 percent.

Page 49: Second line from bottom: 8[N]

Page 55. The summation sign shifted up. Should be

Average return = k = 1/n ∑ kt

Page 58. Near the bottom in table Recession line: The first value under k i-E(k) should be a negative value
-21.5

Page 62. Cross out 26 at the beginning of the page.

Page 65. Line 6 from bottom. ....it seems inappropriate to use 34 percent...

Page 67. Line 4 after Table. kBi = a + bB*kmi = 12.26 + 0.33 kmi.

Page 72. Problem 17. Cross out nominal

Page 74. N = 9, Y = 18.44 should be y bar = 18.44

Page 87. D0 instead of D1. Formula preceding equation 8. P0 = ∑[Do(1+g)t/(1+k)t]

Page 89. Above Computing Dividend Yield (1+ tr) should be (1+tr)

Page 90. Problem 26. Line 2. Taka 39

Page 94: Line 6: 3.68

Page 94: Line 5 from bottom. And 34 percent as the required return ....

Page 96: Second Para line 4: 1.21

Page 96. Line 6 from bottom, price of stock is 6.90 percent.

Note 5 at the bottom. Price at ..... was Taka 329.25

Page 97. Problem 28, line 2. Flow of Taka 3,00,00,000 next year.

Problem 30, line 3. The changes management is contemplating.

Page 103: (Instead of ke for CAPM equation, use ks as the required return on equity

Page 106. Problem 12 (a) What is the retention growth rate?

Page 124. Problem 7 (a) Delete “ Use discount rate of 14 percent.”

Page 127. Near the middle above WACC. Which would be the appropriate .

Page 129. 2nd and third line of the example: 1,384.70. Therefore............... Taka 1,384.70 and should be
accepted.

Page 132. Problem 9. Lines 2 and 5. Change “total asset” to “total capital”.

Page 134. Near the middle after example

We have: Clear time value counter first

[2nd] [±][ENTER]

Make sure there is nothing left on the CF counter

[2nd] [±][ENTER]

Change this to

Clear time value counter first

[2nd] [FV][2nd] [CE/C]

Make sure there is nothing left on the CF counter

[2nd] [CF][2nd][CE/C]

Page 143. Problem 4 line 2: Delete “ per year.”

Page 148. Problem 13.

Line 4: 5 percent for the following year.

Line 5: By the end of the 3rd year

Line 6. “... cash flows by 9 percent per year for next 5 years.”

Page 149. Problem 14. Line 6. Taka 2,00,00,000 on an after-tax basis.

Problem 15. Line 4. Excluding tax savings on ....

Column heads shifted. “Project” should be on top of column showing A and B,

“Cost” should be on top of “Taka 36,000”, “Yr 1” should be on top of “9,000” and so on.

Page 159. Line 4. .....outlined under plan 1.

Page 159. Equal sign missing from the equation in the middle of the page.

Page 163. Line 6 from the bottom. Fixed cost should be 80 Lac both columns

Page 163. Problem 2 line 4. Taka 200 per share

a. ….hypothetical EBIT level of 30,000,000 and 40,000,000 after ….

Page 163. Problem 7. Fixed cost 80,00,000 80,00,000

Page 193. Equation in the middle of the page:

g* = M(b)(1+D/E)/[A/S- M(b)(1+D/E)]

4th line from bottom

G* = .15(1-.35)(1+.25)/[.75 - .15(1-.35)(1+.25)]

Page 194. EFN computation near the bottom

EFN= Taka 27,12,000

Page 198. Pro-forma Balance Sheet

Receivables line Year 5: 17,437,500

Total Current Asset line Year 5: 43,593,750

Page 199. TIE Test 4th line

Interest Limit (1.6th of EBIT) Taka 23,43,750

TIE Test 6th line

Additional Interest Cost Slack Available Taka 18,63,750

Additional L.T. Debt Capacity at TIE of 6 is Taka 1,55,31,250

3rd line from bottom: ..., only Taka 1,10,97,668 can be finance .....

Page 200. Line 3: 5th year is Taka 4,35,93,750

Page 220. The table needs to be revised as follows

Year 1 Year 2 Year 3 Year 4

Borrow and Buy Taka Taka Taka Taka
(1) Loan Payment 26,33,875 26,33,875 26,33,875 26,33,875
(2) Tax Savings on Interest1 (2,88,000) (2,27,740) (1,60,250) (84,660)
 (3) Depreciation Tax Savings2 (12,00,000) (7,20,000) (4,80,000) 0
(4) Maintenance after Tax 8,40,000 8,40,000 8,40,000 8,40,000
Total Cash Outflow for Buy Decision 19,85,875 25,26,135 28,33,625 33,89,215
Present Value of Outflows= Taka 79,57,748
Lease
(1) Lease Cost after Taxes 15,68,000 15,68,000 15,68,000 15,68,000
(2) Purchase Option 10,00,000
Total Cash Outflow for Lease Decision 15,68,000 15,68,000 15,68,000 25,68,000
Present Value of Outflows = Taka 53,98,082
Leasing has a net advantage of Taka 25,59,655 over borrowing and buying

Page 221. Problem 7. Use a tax rate of 30 percent. Salvage value is applicable both for the borrow and
buy option and lease and purchase option.

Page 242. 6.c. 3,136.62

Page 242. 9.e. 37.2797

Page 242. 10. A. 14,101.63 B. 25,282,79, C. 14,932.50

Problem 14 Taka 283,643.63

Problem 16. Taka 51,685.13

Page 243. Problem 34. Taka 1,13,750.28

Page 244. Problem 3. (a) Proposal A. ..... (b) 6.05 (c) 39.31 percent

Problem 5 (b) Characteristic line equation for Y is -15.58 + 1.91 k mi

Page 244. 17 (b) 22 percent.

Page 245. Problem 22. Taka 291.57

Problem 25 (d). Taka 218.50 Problem 26 (d) = 26(e) Taka 239.24

Page 246. Problem 7. 15.42 percent

Problem 12 (b) 25.85

Problem 12 (c) 26.75 percent

Problem 16 (b) 14.66 percent

Problem 18 (a) 16.62 percent Problem 18 (c) 29.48 percent Problem 18 (d) 23.28 percent.

Page 247. Problem 8 (b) CE NPV = Taka 13,997.67

Problem 9. Relevered Beta Bl = 1.2588, Rquired return = 34.92, Risk adjusted weighted average
cost of capital, RADR = 28.49
Page 248. Answer to problem 5: Taka 41,15,000

Page 248. Answer to problem 6: Taka 1,50,00,000

Problem 8 (b) 10.87 percent. NPV = -6,51,85,036

Page 248. Answer to problem 12: (c) Taka 10,74,855 (d) 38.22 %

Page 249. Chapter 9. Problem 2. Plan 1 EPS 14.40 at EBIT 1,20,00,000 17.40 at EBIT
1,40,00,000. Plan 4 EPS 19.71 at EBIT 1,40,00,000

Page 250. 1.(d) Total cost Taka 36,660

Page 250 # 6 : Taka 4,72,222

Page 250. Last line 7. Net gain Taka 11,75,616

Page 250, # 3

1. ) z + l =n return point balance = [(3/4 * F * σ2)/i]1/3 + l

= [.75 * 250 * 2,35,0002)/(.175/360)]1/3 + 3,50,000
= 2,77,205 + 3,50,000 = 627,205
z = 2,77,205
(b) lower limit 3,50,000
upper limit = 3 x z + l = 3 x 2,77,205 + 3,50,000 = 831,614 + 3.50,000 = 11,81,614

(c) At upper limit, withdraw 2 x z = 2 x 2,77,205 = 5,54,410

(d) At lower limit, add z = 2,77,205
(e) Average balance = (4z + l)/3 = (4 x 2,77,205 + 3,50,000)/3 = 486,273

Page 253. FVIF Table. 10% column contains 9% column values.