CIMA Exam CIMAPRA19-F03-1 Topic 7 Question 70 Discussion

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

Question #: 70
Topic #: 7

[All CIMAPRA19-F03-1 Questions]

An unlisted company.

* Is owned by the original founders and members of their families

* Pays annual dividends each year depending on the cash requirements of the dominant shareholders.

* Has earnings that are highly sensitive to underlying economic conditions.

* Is a small business in a large Industry where there are listed companies with comparable capital structures

Which of the following methods is likely to give the most accurate equity value for this unlisted company?

ADividend valuation model.

BNet asset valuation

CP/E based valuation using the P/E of a similar company.

DDiscounted cash flow analysis at WACC (based on cash flows after tax but before financing) plus the market value of debt.

Show Suggested Answer

Suggested Answer: C

by Carey at Jul 08, 2023, 12:55 AM

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Nida

5 days ago

The dividend valuation model seems like the obvious choice here given the company's focus on paying dividends to its dominant shareholders. The high sensitivity to economic conditions is also a plus for this approach.

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Tony

9 days ago

I'm not sure, I think using the P/E of a similar company might also give a good estimate of the equity value. It's important to consider all options before making a decision.

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Javier

11 days ago

I agree with Carmen. The discounted cash flow analysis takes into account the future cash flows of the company, which would be more accurate than just looking at dividends or net assets.

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Carmen

15 days ago

I think the most accurate equity value for this unlisted company would be calculated using the discounted cash flow analysis at WACC plus the market value of debt.

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Kandis

19 days ago

I'm not sure, I think using the P/E of a similar company might also give a good estimate of the equity value. It's a tough choice between C and D.

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Carol

21 days ago

I agree with Arlette. The discounted cash flow analysis takes into account the future cash flows of the company, which would be more accurate than just looking at dividends or net assets.

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Arlette

26 days ago

I think the most accurate equity value for this unlisted company would be calculated using the discounted cash flow analysis at WACC plus the market value of debt.

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