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CMA Final · Strategic Performance Management and Business Valuation · Business Valuation Methods and Approaches

Ananya Textiles has maintainable annual profit after tax of Rs 36 lakh. A comparable listed company trades at a price-earnings multiple of 12. Ananya is unlisted and the valuer applies a 25% discount for lack of marketability to the multiple-based value. What is the value of the equity of Ananya Textiles?

The equity value is Rs 324 lakh. Profit of Rs 36 lakh times a multiple of 12 gives Rs 432 lakh, and a 25% marketability discount removes Rs 108 lakh, leaving Rs 324 lakh. Ignoring the discount would overstate the value of the unlisted company.

  1. ARs 324 lakhCorrect
  2. BRs 432 lakh
  3. CRs 108 lakh
  4. DRs 300 lakh

Explanation

Value before discount = 36 x 12 = Rs 432 lakh. Discount = 25% of 432 = 108. Value = 432 - 108 = Rs 324 lakh. Rs 432 lakh ignores the discount, and Rs 108 lakh is just the discount amount.

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