 # Error in Q20 from CFAI sample exam?

Q20 in the sample exam (relating to FDF - private company valuation) by CFAI does not take EBITDA net of taxes to calculate FCFF. Is that an error or am I missing something?

Yeah, there is a calculation mistake, if you look at the calculation in the feedback it says 572,500 * (.115 - .05) = 8,834,877. Which is just wrong. I get 8,807,692, then remove the debt to get equity value of \$8,057,692.

There is another, less costly error in #28. The feedback says 11% - 9% = 3%.

Its a little concerning that the exam is two weeks away and CFA still has errors in their materials.

Oh great! Thanks for clarifying. I was freaking out a little bit if I got FCFF calc questions wrong.

hey, can someone explain how you arrived at 572,500 in the first place?

so you start off with EBITDA: (2,500,000 * 1.05) * 30% = 787,500. then aren’t you supposed to take net of taxes, i.e. multiply by (1 - t)? answer key jumps straight to adding back (Dep * t) = 78,750, then deducts FCInv (275,000) and WCInv (18,750) to arrive at 572,500, when it is supposed to be 336,250.

i can live with the calculation error, cuz that’s easy enough to figure out, but leaving out a KEY computational step? did i get this right, or am i missing something?

^ bump.

I believe that should be errata

EBITDA should be multiplied by (1-T) to get the FCFF

Anyone supports our arguements?