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CMA Final · Strategic Performance Management and Business Valuation · Fundamentals of Business Valuation

Sundaram Foods earns a maintainable annual profit after tax of Rs 36 lakh. Similar listed firms trade at a price-earnings multiple of 12. A 25% discount for lack of marketability is applied to the resulting equity value of this private company. The marketability-adjusted equity value is:

The adjusted equity value is Rs 3.24 crore. Profit of Rs 36 lakh times the multiple of 12 gives Rs 4.32 crore, and reducing it by a 25% marketability discount, which is Rs 1.08 crore, leaves Rs 3.24 crore.

  1. ARs 3.24 croreCorrect
  2. BRs 4.32 crore
  3. CRs 1.08 crore
  4. DRs 5.40 crore

Explanation

Unadjusted value = 36 lakh x 12 = Rs 4.32 crore. Applying a 25% discount gives 4.32 x 0.75 = Rs 3.24 crore. Rs 4.32 crore ignores the discount, Rs 1.08 crore is the discount amount only.

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