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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Thersa

2 days ago

This is a tricky one! I'd go with A, C, and F. Gotta watch out for those sneaky answers that seem like they'd increase the P/E ratio, but actually decrease it. Can't fool me, exam writers!

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Theron

13 days ago

The correct answers are A, C, and F. The lower scrutiny and regulation (B) and the higher growth forecast (E) would actually justify an increase in the proxy P/E ratio, not a reduction.

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A, C, and F are the factors that would justify a reduction in the proxy P/E ratio. The lack of marketability and the smaller, less established nature of the unlisted company warrant a lower valuation, and a non-recurring earnings item should also be accounted for.

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Skye

1 months 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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Kent

1 months 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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Vernice

1 months ago

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

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

Contribute your Thoughts:

Thersa

Theron

Thomasena

Skye

Kent

Vernice