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CA Final · Advanced Financial Management · Security Valuation

Shreeram Plastics Ltd has a net profit of ₹50 crore and 5 crore equity shares outstanding. Listed peers in the same industry trade at an average P/E multiple of 18. Using the relative (P/E) valuation approach, what is the estimated value per share of Shreeram Plastics?

The value per share is ₹180. Earnings per share is ₹50 crore divided by 5 crore shares, which equals ₹10, and multiplying this by the peer average P/E of 18 gives the relative value. Applying the multiple to total profit gives total value, not per-share value.

  1. A₹90
  2. B₹180Correct
  3. C₹900
  4. D₹28

Explanation

EPS = ₹50 crore / 5 crore shares = ₹10. Value per share = EPS × peer P/E = 10 × 18 = ₹180. ₹90 comes from multiplying the P/E by the number of shares in crore, and ₹900 applies the multiple to total profit instead of EPS.

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