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

Limited Time Offer

25%

Off

Get Premium CIMAPRA19-F03-1 Questions as Interactive Web-Based Practice Test or PDF

Contribute your Thoughts:

Submit Cancel

Yoko

1 months ago

This question is like a game of Tetris - you gotta fit the right pieces together to make it work. A, C, and F are the way to go. Although, I can't help but wonder if the exam writers just threw in a few wild cards to see who's really paying attention. Unlisted companies and their 'profit items' - what a wild ride!

upvoted 0 times

...

Dalene

1 months ago

A, C, and F are the winners here. Although, I have to say, the idea of an unlisted company being subject to less scrutiny and regulation just sounds like a recipe for disaster. Maybe they should toss in a few goats and a crystal ball to really seal the deal!

upvoted 0 times

...

Thersa

1 months 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!

upvoted 0 times

Elly

1 days ago

F) A profit item within the unlisted company's latest earnings which will not reoccur.

upvoted 0 times

...

Sage

2 days ago

C) Unlisted companies being generally smaller and less established.

upvoted 0 times

...

Tequila

11 days ago

I agree with F, one-time profit items can skew the ratio if not adjusted for.

upvoted 0 times

...

Jonelle

12 days ago

A) The relative lack of marketability of unlisted company shares.

upvoted 0 times

...

Kimi

16 days ago

Yeah, C seems important too, smaller and less established companies might have lower ratios.

upvoted 0 times

...

Dino

1 months ago

I think A makes sense, lack of marketability can definitely lower the P/E ratio.

upvoted 0 times

...

Theron

2 months 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.

upvoted 0 times

Veronica

1 months ago

F) A profit item within the unlisted company's latest earnings which will not reoccur.

upvoted 0 times

...

Breana

1 months ago

C) Unlisted companies being generally smaller and less established.

upvoted 0 times

...

Hailey

1 months ago

A) The relative lack of marketability of unlisted company shares.

upvoted 0 times

...

Thomasena

2 months ago

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.

upvoted 0 times