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BA 340 - Finance
Fall 2006
Corrections
to Financial Management: A Modern
Approach
Chapter
1:
Page 12, Line 8 – want the company mangers to act, should be managers
Page 16, Line 28 – yet it is not be good, delete be
Chapter
2:
Page 22, Line 6 -- we just need to
multiple should be multiply
Page 24, Line 25 -- using the PV
formula price of this should be using the PV formula the price of this
Page 30, Line 15 – interest rate on
his one-year loan, should be five-year
Page 31, Line 16 – 
, should be 
Page 32, Line 10 -- $1,000,000 /
$228.10 = 438.0421, should be 4380.421
Page 32, Line 11 – until you find 438.0412, should be 4380.421
Page 33, Line 12 – but do find 438.0, should be 4384.0
Chapter
3:
Page
48, Line 18 -- 
should be 
Page
57, Line 8 – in equation 3.13 (1+r)n-1
should be (1+r)n
Page
57, Line 9 – (1 +0.08)4-1 should
be (1 +0.08)4
Chapter 4
Page 83, Line 35 -- 
should be 
Page 84, Line 4 -- 
should be 
Page
85, Line 3 – Equation 4.5 can be
restated should be Equation 4.7
Chapter 5
Page
101, Line 21 – periods are different than
should be different then
Page
103, Line 30 - stated this as one half
year and used 2 (1 / (1/2)) for the
exponent in the equation.
Chapter 6
Page
147, Line 39 – Baa3 or BBB should be
BBB-
Page 151, Lines 5 through 9 the denominator
in the PVIFA portion of the bond pricing is 40 and should be 0.0475
$689.15 = 
Now
we need to isolate the coupon amount on the left-hand side of the equation and
we have:
Coupon 
= $689.15 - 
Page
160, Line 15 – Par Value and 9/32nds
of $1000 should be 28/32nds
Page
162, Line 4 – one of our financial principals
should be principles
Chapter 7
Page
173, Line 17 – (20 Years) exponent in equation is 10 should be 20
Page
173, Line 20 – (50 Years) exponent in equation is 10 should be 50
Page 174, Line 1 – (100 Years) exponent
in equation is 10 should be 100
Page 175 replace example with the following example
changes in bold and the changes
In the equations
(superscripts and subscripts)
Example
7.4 Changing Cash Dividends
Problem:
Peterson Packaging Incorporated does not currently pay dividends. The company
will start with a $0.50 dividend at the end of year three and grow it by 10% for each of the next six years. After five years of growth, it will fix its dividend at
$1.00 forever. If you want a 15% return on this stock, what should you pay
today, given this future dividend stream?
Solution:
The first step is to look at the timing and amount of the cash flow that you
will receive as a shareholder.
Expected Dividend Stream of Peterson Packaging
T0 T1 T2 T3 T4 T5
T6 T7 T8 T9 T10 T∞
----
$0.00 $0.00 $0.50
$0.55 $0.61 $0.67
$0.73 $0.81 $1.00
$1.00 …$1.00
We
notice that there are three distinct dividend patterns -- a period of no
dividends, T1 to T2;
a period of constant growth dividends, T3
to T8; and a period of constant dividends, T9 to T∞ .
To price this stock we need to determine the present value of each pattern.
The first pattern, no dividends, is
rather easy to value. It is zero.
The
second pattern is a constant growth dividend stream with a finite horizon. But
we need to realize that this pattern does not start until the end of year four.
Therefore when we apply the dividend growth model we will be getting a price
for the start of year four or end of year three and we will have six periods of
growing dividends:
Price3 = $10.00 x (0.2341) = $2.34
The
price at the end of period 2 is still a future value. Now we must discount this
future value at 15% for its present value:
Price0 = 
The
final dividend pattern is perpetuity and we can use equation 7.1 here:
And
again, we must discount this future value at 15% for its present value:
Finally,
adding the three pieces we get:
Price of Stock = $0.00 + $1.77 +
$2.18 = $3.95
Page
179, Line 2 and 3 – delete redundant g =
Page
183, Line 2 – intercept of the SML
should be CAPM line.
Chapter 8
Page
206, First line of Table 8.2, replace last column with .5 x -0.01 + .5 x 0.25 = 0.12
|
Boom |
0.15 |
– 1.00% |
25.00% |
.5 x - 0.01 + .5 x 0.15 = 0.12 |
|
Boom |
0.15 |
-1.00% |
25.00% |
.5 x - 0.01 + .5 x 0.25 = 0.12 |
Page 224, Line 8 – and is written a should be written as
Chapter 10
Page 263, Line 6 – and uses of cash
flow. should be cash flow,
Page
277, Line 3 – 11,080,000 should be 11,980,000
Page
282, Line 3 – missing table column headings, they should be
Year Filtering Machine Bottling Machine
Chapter 11
Page
312, Line 37 – due to Project C’s its
high delete its
Chapter 12
Page
329, Line 11 – all the different form
personal should be from
Page
330, Line 8 –
Page
334, Line 15 – the RA or
WACC should be Ra
Chapter 13
Page
349, Line 12 – cash conversion cycle is
begins delete is
Page
356, Line 13 – August 31, 2004, Age
the receivables should be 2004.
Page 357, Lines 7 thru 10 have the wrong invoice numbers
they should be
Line
7 AB 20043 should be AB 21376
Line
8 AB 20043 should be AB 21994
Line
9 AB 20043 should be AB 22065
Line
10 AB 20043 should be AB 25001
Page
359, score card – with parents living
should be living with parents
Page 369, equation 3.15 is Total Annual
Ordering Cost = OC x (Q/S) and should be OC x (S/Q)