CMA Final · Strategic Performance Management and Business Valuation · Business Valuation Methods and Approaches
A valuer uses the price-to-earnings multiple of listed comparable companies to value an unlisted firm with earnings of Rs 5 crore. The comparables' average P/E is 14. The valuer applies a 20% discount for lack of marketability. What is the estimated equity value?
Multiplying earnings of Rs 5 crore by the comparable P/E of 14 gives Rs 70 crore. Applying the 20% marketability discount removes Rs 14 crore, leaving an estimated equity value of Rs 56 crore.
- ARs 70 crore
- BRs 56 croreCorrect
- CRs 84 crore
- DRs 14 crore
Explanation
Unadjusted value = 14 x 5 = Rs 70 crore. Discount for lack of marketability = 20% of 70 = 14 crore. Adjusted value = 70 - 14 = Rs 56 crore. Rs 70 crore ignores the marketability discount.
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