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CIMAPRA19-F03-1 Exam - Topic 6 Question 125 Discussion

Assume today is 31 December 20X1.A listed mobile phone company has just launched a new phone which is proving to be a great success.As a direct result of the product's success, earnings are forecast to increase by:* 5% a year in each of years 20X2 -- 20X6* 3% from 20X7 onwardsMarket analysts were very excited to hear the news of the success of the product and future growth forecasts.Assuming a semi-efficient market applies, which of the following company valuation methods is likely to give the best estimate of the company's equity value today?
B) Today's share price x number of shares in issue.
A) Today's share price x number of shares in issue + retained earnings.
C) Discounted free cash flow using the company's forecast growth rates.
D) P/E valuation based on the company's long term P/E and earnings for the year ended 31 December 20X1.

CIMAPRA19-F03-1 Exam - Topic 6 Question 125 Discussion

Actual exam question for CIMA's CIMAPRA19-F03-1 exam
Question #: 125
Topic #: 6
[All CIMAPRA19-F03-1 Questions]

Assume today is 31 December 20X1.

A listed mobile phone company has just launched a new phone which is proving to be a great success.

As a direct result of the product's success, earnings are forecast to increase by:

* 5% a year in each of years 20X2 -- 20X6

* 3% from 20X7 onwards

Market analysts were very excited to hear the news of the success of the product and future growth forecasts.

Assuming a semi-efficient market applies, which of the following company valuation methods is likely to give the best estimate of the company's equity value today?

Show Suggested Answer Hide Answer
Suggested Answer: B

by Casie at May 13, 2026, 02:08 PM

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Detra
10 hours ago
I agree, C gives a clearer picture of value.
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Kirby
6 days ago
I think C is the best choice. Future growth rates matter a lot.
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Pedro
11 days ago
Wait, 5% growth for 5 years? That sounds too optimistic!
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Lura
16 days ago
B seems too simplistic for this situation.
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Bethanie
21 days ago
Really? I thought A might be better for a quick estimate.
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Venita
26 days ago
Totally agree, C makes the most sense!
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Horace
1 month ago
I think C is the best choice since it considers future growth rates.
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Nadine
1 month ago
A solid P/E valuation could also work here.
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Bobbie
1 month ago
Not sure if those forecasts are realistic, though.
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Catalina
2 months ago
Wow, 5% growth for 5 years? That's impressive!
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Rickie
2 months ago
I disagree, B is simpler and still valid.
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Dong
2 months ago
C seems like the best choice with those growth rates.
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Layla
2 months ago
I practiced a similar question where discounted cash flow was the best choice, but I’m hesitant because of the semi-efficient market assumption here.
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Mi
2 months ago
I feel like the P/E valuation could be useful too, especially since it’s based on historical earnings, but I’m not confident it captures future growth accurately.
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Lazaro
2 months ago
I think option C makes the most sense since it considers future growth rates, but I wonder if the market's excitement is already reflected in the current share price.
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Lemuel
4 months ago
I remember we discussed how discounted cash flow is often the best method for valuing companies with growth forecasts, but I'm not entirely sure if it applies here.
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