CIMA Exam CIMAPRA19-F03-1 Topic 2 Question 63 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam

Question #: 63
Topic #: 2

When valuing an unlisted company, aP/Eratio for a similar listed company may be used but adjustments to theP/Eratio may be necessary.

Which THREE of the following factors would justify a reduction in the proxy p/e ratio before use?

AThe relative lack of marketability of unlisted company shares.

BA lower level of scrutiny and regulation for unlisted companies.

CUnlisted companies being generally smaller and less established.

DControl premium not being included within the proxy p/e ratio used.

EThe forecast earnings growth being relatively higher in the unlisted company.

FA profit item within the unlisted company's latest earnings which will not reoccur.

Show Suggested Answer

Suggested Answer: A, B, E

by Chantell at Jan 06, 2023, 10:19 PM

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4 days ago

I also think factor E could justify a reduction. Higher forecast earnings growth in the unlisted company should definitely be taken into account.

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6 days ago

I agree with Vernice. The lack of marketability, smaller size, and non-recurring profit item are all valid reasons for adjustment.

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7 days ago

I think factors A, C, and F would justify a reduction in the proxy p/e ratio.

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