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CA Final · Advanced Financial Management · Business Valuation

Mehta Pharma Ltd, an unlisted company, is being valued using a peer with a P/E of 20. Mehta has PAT of Rs 30 crore and 5 crore shares. The valuer applies a 25% discount for lack of marketability (illiquidity) to the derived value per share. What is the final value per share?

The final value is Rs 90 per share. EPS is Rs 6, the peer P/E of 20 gives Rs 120, and applying a 25% marketability discount reduces it to 75% of Rs 120, which equals Rs 90.

  1. ARs 80
  2. BRs 90Correct
  3. CRs 100
  4. DRs 120

Explanation

EPS = 30/5 = Rs 6. Value before discount = 6 x 20 = Rs 120. After 25% discount = 120 x 0.75 = Rs 90. Rs 120 ignores the discount; Rs 100 would result from subtracting a wrong discount of about 17%; Rs 80 treats the discount as 33%.

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