CIMA Exam CIMAPRA19-F03-1 Topic 6 Question 87 Discussion

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

Question #: 87
Topic #: 6

[All CIMAPRA19-F03-1 Questions]

Company ABC is planning to bid forcompanyDDD, an unlisted company in an unrelated industry sector to ABC.

The directors of ABC are considering a number of different valuation methods for DDDbefore making a bid.

Which of the following is the MOST appropriate method for ABC to use to value DDD?

AUsing DDD's tangible assets.

BApplying an industry P/E ratio to DDD's forecast earnings.

CDiscounting DDD's forecast cash flows using ABC's cost of equity.

DApplying Company ABC's P/E ratio to DDD's forecast earnings.

Show Suggested Answer

Suggested Answer: A, B, E

by Terrilyn at May 18, 2024, 10:01 PM

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Arlean

13 days ago

Hmm, I wonder if they'll accept 'all of the above' as an answer. After all, a good valuation should consider multiple methodologies, right?

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Arlette

14 days ago

A? Really? Using tangible assets to value an unlisted company? That's like trying to value a tech startup based on its office furniture.

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Slyvia

22 days ago

I'm not sure, but I think D might be the best option. Applying ABC's own P/E ratio to DDD's forecast earnings could give a good sense of the potential synergies.

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Jesse

25 days ago

B looks like the way to go. Applying an industry P/E ratio to DDD's forecast earnings is a fairly standard valuation approach.

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Sol

25 days ago

I think C is the most appropriate method. Discounting DDD's forecast cash flows using ABC's cost of equity seems like a robust way to value an unlisted company in an unrelated industry.

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