ACCA Strategic Professional · Advanced Financial Management · Valuation and the use of free cash flows
Brava Co has 10 million shares in issue and expected earnings of $5m. A similar listed company has a P/E ratio of 12. Brava is unlisted and a 25% discount is judged appropriate for lack of marketability. What is the estimated value per share of Brava Co?
The value per share is $4.50. EPS is $0.50, the peer P/E of 12 gives $6.00 per share, and applying the 25% marketability discount for an unlisted company reduces this to $4.50.
- A$4.50Correct
- B$6.00
- C$0.45
- D$5.00
Explanation
EPS = $5m / 10m = $0.50. Value at peer P/E = 12 x $0.50 = $6.00. After a 25% discount: $6.00 x 0.75 = $4.50. $6.00 ignores the discount.
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