V5 Module 7 Errata: Relative Value Equity Valuation Approaches

1. Equation 7 Assigns a Different Regression to Every Firm

Curriculum location: Price Multiples and Equity Valuation, cross-sectional P/B regression, Equation 7, p. 221.

$$\frac{P}{B}{\text{ Multiple}}_i=a_i+b_{1,i}\times {\mathrm{ROE}}_i+b_{2,i}\times g_i+b_{3,i}\times r_{e,i}+e_i,\text{\hspace{1em}(7)}$$

A single cross-sectional regression estimates one intercept and one slope for each explanatory variable across the sampled firms. The knowledge check on p. 222 confirms this by reporting one intercept of $-2.58$, one ROE coefficient of $29.02$, and one growth coefficient of $46.53$, then applying those common estimates to Firm 3. Firm $i$ indexes the observation's P/B, fundamentals, and residual; attaching $i$ to every fitted coefficient instead describes firm-specific equations and defeats the common comparison.

Correct reading: Use common coefficients $a,b_1,b_2,b_3$ and a firm-specific residual $e_i$:

$$\frac{P}{B}{\text{ Multiple}}_i=a+b_1{\mathrm{ROE}}_i+b_2{g}_i+b_3{r}_{e,i}+e_i.$$

This distinction is essential when candidates use residuals from a common fitted relationship to identify relative overvaluation or undervaluation.

2. Scarola’s EV Solution States EUR90 Billion While Its Inputs Give EUR92 Billion

Curriculum location: Price and Enterprise Value Multiples, Scarola enterprise value solution, p. 227.

"Scarola's EV at the end of the fiscal year is EUR90 billion, calculated using Equation 9:"

The arithmetic displayed directly below the sentence is $25+(2.5\times 30)-8=92$. The prose total cannot be reproduced from the stated market capitalization, common shares and share price, debt, and cash.

Correct reading: Scarola's enterprise value is

$$\mathrm{EUR}25\text{ billion}+(2.5\text{ billion shares}\times \mathrm{EUR}30/\text{share})-\mathrm{EUR}8\text{ billion}=\mathrm{EUR}92\text{ billion}.$$

Using the corrected total keeps the enterprise-value numerator consistent before any EV-based multiple is calculated.

3. The EBIT Definition Says Depreciation and Amortization Are Excluded

Curriculum location: Price and Enterprise Value Multiples, earnings-based multiples, p. 229.

"EBIT excludes depreciation and amortization to measure operating income available to both debt and equity investors, whereas EBITDA is a broader, non-standardized measure that excludes depreciation, amortization, and other non-cash expenses."

Exhibit 7 on the same page constructs EBIT from net income, taxes, and interest without adding back depreciation or amortization. It then adds those expenses to EBIT to obtain EBITDA. The quoted sentence reverses that distinction.

Correct reading: EBIT is earnings after depreciation and amortization expense but before interest and taxes. EBITDA adds depreciation and amortization back to EBIT.

Candidates need the distinction to choose and interpret EV/EBIT versus EV/EBITDA consistently across firms with different depreciation profiles.

4. The Growth Sensitivity Solution Calls an Increase a Decrease

Curriculum location: Price and Enterprise Value Multiples, justified P/E sensitivity analysis, p. 233.

"An increase in growth rate from 3% to 5% results in a decrease in the justified multiple from 16.48 to 28.00."

The stated endpoint, the sensitivity table, and the following sentence all show a positive change. Moving from $16.48$ to $28.00$ is an increase, not a decrease.

Correct reading: Holding payout and the cost of equity fixed, increasing $g$ from $3\%$ to $5\%$ raises the justified P/E from $16.48$ to $28.00$.

The corrected direction protects the comparative-static rule candidates use to assess growth assumptions in justified P/E models.

5. The Alpha and Beta P/S Calculations Omit the 1.03 Growth Factor

Curriculum location: Price and Enterprise Value Multiples, Question Set 2, Alpha calculation, p. 248.

Alpha:

$$\frac{P_t}{{\mathrm{Sales}}_t}=\frac{(\text{Net profit margin})\times (\text{Payout ratio})\times (1+g)}{r_e-g}=\frac{0.06\times 70\%}{0.08-0.03}=\frac{0.042}{0.05}=\mathrm{0.84.}$$

Curriculum location: Price and Enterprise Value Multiples, Question Set 2, Beta calculation, p. 248.

Beta:

$$\frac{P_t}{{\mathrm{Sales}}_t}=\frac{(\text{Net profit margin})\times (\text{Payout ratio})\times (1+g)}{r_e-g}=\frac{0.05\times 84\%}{0.08-0.03}=\frac{0.042}{0.05}=\mathrm{0.84.}$$

Both displayed formulas include $(1+g)$, and both companies have $g=3\%$, but each numeric substitution omits the factor $1.03$. The omission does not change the equality between Alpha and Beta, but it prevents reproduction of either printed multiple.

Correct reading: For each firm, $P/S=0.042\times 1.03/0.05=0.8652\approx 0.87$. Their calculated justified P/S multiples remain equal; keyed answer C also remains unchanged.

Candidates can preserve the equality result while still applying every factor in the justified-multiple formula.

6. The Actual P/E Identity Uses Earnings Yield Instead of Dividend Yield

Curriculum location: Price and Enterprise Value Multiples, Question Set 2, actual P/E identity, p. 249.

$$\text{Actual }\frac{P}{E}=\frac{\text{Dividend payout ratio}}{\text{Dividend yield}}=\frac{D/E}{E/P}.$$

Dividend yield is $D/P$, not $E/P$. Substituting earnings yield into the displayed payout-ratio identity does not produce P/E and conflicts with the numeric method used immediately below it.

Correct reading: Use $\frac{P}{E}=\frac{D/E}{D/P}$, where $D/P$ is dividend yield.

The corrected identity keeps dividend yield distinct from earnings yield when candidates derive an observed P/E from payout information.

7. Firm 2's Payout Input Is Off by a Factor of Ten

Curriculum location: Price and Enterprise Value Multiples, Question Set 2, Firm 2 calculation, p. 249.

$$\text{Firm 2 actual }\frac{P}{E}=\frac{0.085}{0.08}=\mathrm{10.63.}$$

Firm 2's disclosed payout ratio is $85\%=0.85$, not $0.085$. The printed input gives $1.0625$, so the displayed result $10.63$ is reproducible only after correcting the percentage conversion.

Correct reading: Firm 2's actual P/E is $0.85/0.08=10.625\approx 10.63$. The relative-valuation conclusion and keyed answer C remain unchanged.

This correction prevents a factor-of-ten input error while preserving the correctly intended relative-valuation answer.

8. The Definition of a Current Multiple Reverses Its Ratio

Curriculum location: Use of Multiples to Estimate Equity Value, Multiples Based on Current Values, p. 258.

"As shown in prior lessons, current multiples typically involve the ratio of earnings, cash flow, or sales over the most recent quarter to the current share price or enterprise value."

The next sentence gives the standard orientation—price or enterprise value relative to a fundamental—so the opening sentence reverses numerator and denominator rather than introducing an alternative convention.

Correct reading: A price multiple is current share price divided by a per-share fundamental; an enterprise-value multiple is enterprise value divided by the corresponding operating fundamental.

Candidates must preserve the ratio's orientation when interpreting whether a security trades at a premium or discount to a benchmark multiple.

9. Swisserv Option B Prints CHF649.0 Million for Two-Year Discounting

Curriculum location: Use of Multiples to Estimate Equity Value, Swisserv Knowledge Check, Question 1 option B, p. 261.

"B. CHF649.0 million"

Curriculum location: Use of Multiples to Estimate Equity Value, Swisserv Knowledge Check, option B explanation, p. 262.

"B is incorrect because it results from mistakenly solving for the present value of the terminal value by discounting by the required return on equity over two years rather than three."

Discounting the terminal value of $\mathrm{CHF}65,750,630$ for two years gives about $\mathrm{CHF}54.34$ million. Adding the three stated FCFE present values gives about $\mathrm{CHF}64.04$ million, not $\mathrm{CHF}649.0$ million.

Correct reading: If option B is meant to represent the stated two-year discounting mistake, it should be approximately $\mathrm{CHF}64.0$ million. The correct answer A, based on three-year discounting, remains $\mathrm{CHF}59.1$ million.

This correction makes the distractor diagnostic reproducible and reinforces that a terminal value is discounted over the full explicit forecast horizon.

Complete Module 7 Errata Index

Scope: Module 7, pp. 209–270 (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, including eligible errors in printed questions and solutions. Repeated instances of the same defect are consolidated into one row. Import-only defects, question errors not printed in the module source, disputed or reasonably defensible claims, and low-value editorial corrections are outside scope.

References

• CFA Institute: Market-Based Valuation—Price and Enterprise Value Multiples
• NIST/SEMATECH: Models for Process Modeling
• NYU Stern: Financial Ratio Definitions

This article is an independent candidate-focused analysis of confirmed errors in the CFA Level I 2027 Curriculum, Volume 5 Equity Investments, Module 7 Relative Value Equity Valuation Approaches. It is not an official CFA Institute errata notice, and inclusion here must not be read as CFA Institute confirmation, endorsement, or approval.