V5 Module 8 Errata: Financial Statement Forecasting in Equity Valuation

1. Toyota's Top-Down Forecast Adds Growth Rates That Should Be Compounded

Curriculum location: Financial Statement Model Uses in Equity Valuation, Toyota top-down revenue Knowledge Check, quote p. 286; propagated forecast table p. 287.

“equal to 11.14% growth”

The solution uses that result after adding 4% market growth to the proportional market-share increase from 14% to 15%. A top-down forecast instead applies the new share to the larger market:

$$\left(1.04\times \frac{15}{14}\right)-1=11.4286\%.$$

Using unrounded regional inputs gives 3,137.83 thousand North American units and 10,001.61 thousand total units. Applying each region's price assumption gives total revenue of approximately JPY50,094.50 billion, or JPY50,095 billion when rounded, and 11.09% growth over JPY45,095 billion. The printed JPY50,040 billion and 10.97% growth are understated.

Correct reading: When both market size and market share change, combine them multiplicatively. For North America, use $2,816\times 1.04\times (15/14)$, not $2,816\times [1+0.04+(15/14-1)]$.

A candidate who adds these rates can carry a systematic error from units into revenue.

2. Folium’s Unchanged-Debt Forecast Is Called Zero Debt

Curriculum location: Equity Valuation and Financial Statement Model Output, terminal-value discussion, p. 319.

“forecast assumption of zero debt”

Exhibit 24, however, keeps Folium's total debt at EUR90 million in every forecast year, while Exhibit 25 reports net borrowing of 0.00 in each year. The model therefore assumes unchanged debt—zero net borrowing—not an absence of debt.

That distinction is economically important because FCFE includes net debt issued: new borrowing adds cash available to equity, while debt repayment reduces it. A zero net-borrowing assumption removes this flow without removing the outstanding debt balance.

Correct reading: The FCFE reliability concern is Folium's assumption of zero net borrowing (unchanged debt), not zero debt.

A candidate who confuses a balance with a period change can misread both forecast financing policy and FCFE.

3. Equation 17 Squares the Reinvestment Rate by Repeating It

Curriculum location: Equity Valuation and Financial Statement Model Output, Equation 17, p. 320.

The printed equation shows

$${\text{FCFF SGR}}_{t+n}=\left(1-\frac{{\text{FCFF}}_{t+n}}{{\text{NOPAT}}_{t+n}}\right)\left(1-\frac{{\text{FCFF}}_{t+n}}{{\text{NOPAT}}_{t+n}}\right)\times \left(\frac{{\text{NOPAT}}_{t+n}}{{\text{Book value of total capital}}_{t+n-1}}\right).\text{\hspace{1em}(17)}$$

The reinvestment factor appears twice. Sustainable operating growth is the reinvestment rate multiplied once by return on capital:

$${\text{FCFF SGR}}_{t+n}=\left(1-\frac{{\text{FCFF}}_{t+n}}{{\text{NOPAT}}_{t+n}}\right)\times \left(\frac{{\text{NOPAT}}_{t+n}}{{\text{Book value of total capital}}_{t+n-1}}\right).$$

With the stated inputs, the correct calculation is $0.2592\times 0.1235=0.0320$, or 3.2%. Repeating the factor would produce about 0.83%. The worked solution immediately below Equation 17 uses the correct single factor, so its 3.2% growth rate and subsequent terminal-value result do not need to change.

Correct reading: FCFF sustainable growth equals reinvestment rate multiplied by return on capital; do not square the reinvestment rate.

A candidate copying Equation 17 instead of the worked substitution can obtain a materially different terminal-growth rate.

Complete Module 8 Errata Index

Scope: Module 8, pp. 271–336 (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 lists every high-value, objectively confirmed curriculum error admitted to this article. Repeated instances of one defect are consolidated. Import-only defects, product-only question observations, reasonably defensible claims, and low-value editorial corrections such as numbering, cross-references, local labels, or self-cured arithmetic display slips are outside the public index.

References

• Aswath Damodaran: FCFE Derivation
• Aswath Damodaran: Fundamental Determinants of Growth

This article is an independent candidate-focused analysis of confirmed errors in the CFA Level I 2027 Curriculum, Volume 5 Equity Investments, Module 8 Financial Statement Forecasting in Equity Valuation. It is not an official CFA Institute errata notice, and inclusion here must not be read as CFA Institute confirmation, endorsement, or approval.