V5 Module 6 Errata: Discounted Cash Flow (DCF) and Growth Models

1. Excelitate’s Cash Change Has the Wrong Sign

Curriculum location: Present Value Models for Equity Instruments, Excelitate FCFE Knowledge Check, p. 156.

"Since FCFE is USD100,000, we can apply Equation 5 to solve for the change in cash of USD6,300,000 as follows:"

$$\Delta \text{Cash}=2,000,000+5,000,000-600,000-100,000=6,300,000.$$

The curriculum’s own identity is $\mathrm{FCFE}=\Delta \text{Cash}+\text{Dividends}-\Delta \text{Equity}$. With FCFE of USD0.1 million, dividends of USD2.0 million, repurchases of USD5.0 million, and new issuance of USD0.6 million, rearrangement gives $\Delta \text{Cash}=0.1-2.0-5.0+0.6=-6.3$ million. The displayed positive sign reverses the economic direction.

Correct reading: Excelitate’s cash position decreases by USD6.3 million, so $\Delta \text{Cash}=-\mathrm{USD}6.3\text{ million}$.

This matters because dropping the sign can reverse whether shareholder distributions and financing consume or create cash in an FCFE reconciliation.

2. Equation 15’s Numerator Is Not the Terminal Value

Curriculum location: Growth Assumptions in Present Value Models, Constant Growth Models, p. 175.

"When a constant growth assumption is applied to the most recent or next period’s cash flow metric, the numerator of Equation 15 also serves as the terminal value."

The numerator is one expected cash flow, not a value. Equation 15 creates value only after capitalizing that cash flow by the required-return-minus-growth spread.

Correct reading: At the start of stable growth, terminal value is the complete quotient $\frac{E(CF{)}_{t+1}}{r-g}$. The numerator $E(CF{)}_{t+1}$ is the first stable-period cash flow.

Treating the numerator as terminal value can make a candidate omit the capitalization denominator entirely.

3. Excelitate’s Year 1 Present Value Is Transposed

Curriculum location: Growth Assumptions in Present Value Models, Two-stage Growth Models Knowledge Check, p. 181.

$$\mathrm{IV}=3,621,900+3,729,450+3,849,750+3,973,940+4,102,130+80,675,230.$$

Year 1 FCFE is USD3,920,000 and the discount rate is $8.5\%$, so its present value is $3,920,000/1.085=3,612,903.23$, approximately USD3,612,900. The printed USD3,621,900 transposes two digits and is carried from the table into the sum. The reported total comes from unrounded discounted values; the printed rounded addends cannot reproduce it because of the USD9,000 transposition.

Correct reading: Replace both appearances of USD3,621,900 with approximately USD3,612,900. Use unrounded present values for the final aggregate.

This correction lets a candidate reproduce the worked multistage valuation instead of treating a material discrepancy as rounding.

4. The Swisserv FCFF Ratio Is Printed as FCFE

Curriculum location: Growth Assumptions in Present Value Models, Swisserv Sustainable Growth Rate Knowledge Check, p. 186.

$$\frac{\mathrm{FCFE}}{\mathrm{NOPAT}}=\frac{2,672,000}{5,472,000}=48.8\%.$$

The same page lists FCFE as CHF3,120,000 and FCFF as CHF2,672,000. Equation 22 also requires the FCFF-to-NOPAT reinvestment ratio. The numerator’s printed symbol therefore names the wrong cash-flow measure even though the number is the FCFF amount.

Correct reading: The ratio is $\frac{\mathrm{FCFF}}{\mathrm{NOPAT}}=\frac{2,672,000}{5,472,000}=48.8\%$.

Using the FCFE label can lead a candidate to insert CHF3,120,000 into an FCFF sustainable-growth calculation.

5. Terminal Value Is Not Always a Future Share Price

Curriculum location: Growth Assumptions in Present Value Models, Present Value Model Terminal Values, p. 188.

"The terminal value in any valuation is an expected future share price at the end of an $n$ period forecast horizon over which an analyst has projected future cash flows."

The universal statement conflicts with the module’s own FCFF model. Dividends and FCFE are equity claims, but FCFF discounted at WACC produces firm value before debt is subtracted. Their terminal values cannot all be described as future share prices.

Correct reading: Terminal value is the horizon-date value of cash flows beyond the explicit forecast. Dividend and FCFE models produce equity value; an FCFF/WACC model produces firm value, which must be bridged to equity value.

This distinction prevents subtracting debt at the wrong stage—or omitting the debt bridge altogether.

6. The Swisserv Recalculation Mixes Three Different Results

Curriculum location: Growth Assumptions in Present Value Models, Swisserv terminal-value Knowledge Check, p. 190.

"A is correct since the revised terminal value based on the higher stable growth rate of $3.25\%$ is $26\%$ greater than the original value."

Curriculum location: Growth Assumptions in Present Value Models, Swisserv terminal-value Knowledge Check, p. 191.

"The revised intrinsic value using $3.25\%$ stable growth is CHF65.5 million, or a $40\%$ increase in intrinsic value over the original:"

$$\mathrm{IV}=3,176,727+3,234,486+3,293,295+50,375,213=60,079,721.$$

The displayed terminal values rise from CHF50,721,915 to CHF67,049,408, an increase of approximately $32.19\%$, not $26\%$. The displayed present-value components sum to CHF60,079,721, not CHF65.5 million. Relative to the original CHF47,812,633, the revised intrinsic value increases by approximately $25.66\%$, which rounds to the keyed $26\%$, not $40\%$.

Correct reading: The revised terminal value is approximately CHF67.05 million, up $32.2\%$. Its discounted present value is approximately CHF50.38 million, and total intrinsic value is approximately CHF60.08 million, up $25.66\%$, or $26\%$.

Keeping the three objects separate lets a candidate reproduce the worked answer and interpret terminal-value sensitivity correctly.

7. Belchamp’s FCFF Model Produces Firm Value, Not Equity Value

Curriculum location: Limitations of Discounted Cash Flow Growth Models, Changing Cost of Capital Assumptions Knowledge Check, p. 198.

"applying the constant growth model in Equation 16 using FCFF produces an intrinsic equity value of CAD395.6 million:"

Discounting FCFF at WACC produces firm value. No debt is subtracted in the displayed calculation, and the result is compared with the earlier CAD512 million firm value. Calling CAD395.6 million equity value skips the firm-to-equity bridge.

Correct reading: CAD395.6 million is Belchamp’s revised firm value. If the stated CAD104 million debt is retained, the corresponding equity value is approximately CAD291.6 million.

This correction prevents a candidate from overstating equity value by treating an enterprise-value output as a shareholder claim.

8. Question Set 3 Leaves Both B and C Defensible

Curriculum location: Limitations of Discounted Cash Flow Growth Models, Question Set 3, Question 1, p. 199.

"B. Rising share buybacks over time will result in a lower valuation when using a dividend-based model than when using an FCFE model."

"C. Increasing reliance on debt over time will result in a lower valuation when using a dividend-based model than when using an FCFE model."

"C is incorrect because changes in reliance on debt financing will result in a valuation discrepancy not between dividend- and FCFE-based valuation but, rather, between FCFE- and FCFF-based valuation."

Option B is defensible because FCFE captures buybacks that a dividend-only model omits. But the module also defines FCFE to include net borrowing. Increasing net debt issuance can therefore raise FCFE relative to dividends, making C defensible under the same broad wording. “Most accurately” does not supply a condition that eliminates C.

Correct reading: As written, both B and C are defensible. Option C or its conditions must be rewritten so that only one response follows from the FCFE identity.

A candidate who correctly includes net borrowing in FCFE should not be penalized for identifying the second valid mechanism.

9. Monte Corsa’s Solution Uses EUR1,010 Instead of EUR1,020

Curriculum location: Preferred Stock Valuation, Monte Cabrio and Monte Corsa Preferred Shares Knowledge Check, p. 201.

"C is correct because it correctly applies Equation 29 to solve for $r_p$ using $I{V}_t$ of EUR1,010 and $D=\mathrm{EUR}80$ $(=8\%\times 1,000)$, as follows:"

$$\mathrm{EUR}1,020=\frac{80}{r_p};r_p=7.84\%.$$

The stem and substitution use EUR1,020. EUR80 divided by EUR1,010 is $7.9208\%$, closest to B at $8.0\%$; EUR80 divided by EUR1,020 is $7.8431\%$, closest to keyed C at $7.8\%$.

Correct reading: Replace EUR1,010 with EUR1,020 in the explanatory sentence. Then $r_p=80/1,020=7.8431\%$, closest to $7.8\%$ (C).

Because the wrong price changes the closest option, a candidate following the prose can select B even though the key is C.

Complete Module 6 Errata Index

Scope: Module 6, pp. 145–207 (printed page numbers).

What this review covers. Errors in the printed curriculum that would change a candidate's answer or understanding: wrong numbers, wrong formulas, reversed logic, and statements that contradict the module's own data. It does not list spelling mistakes, equation-numbering slips, or wording that is loose but defensible.

The table below lists all high-value, objectively confirmed curriculum errors covered by this article. Repeated instances of the same defect are consolidated into one row. Import-only defects, product-only question errors, reasonably defensible claims, and low-value corrections such as numbering or cross-reference changes are outside scope.

References

• CFA Institute: Free Cash Flow Valuation

This article is an independent candidate-focused analysis of confirmed errors in the CFA Level I 2027 Curriculum, Volume 5 Equity Investments, Module 6 Discounted Cash Flow (DCF) and Growth Models. It is not an official CFA Institute errata notice, and inclusion here must not be read as CFA Institute confirmation, endorsement, or approval.