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

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 structuresWhich of the following methods is likely to give the most accurate equity value for this unlisted company?
C) P/E based valuation using the P/E of a similar company.
A) Dividend valuation model.
B) Net asset valuation
D) Discounted cash flow analysis at WACC (based on cash flows after tax but before financing) plus the market value of debt.

CIMAPRA19-F03-1 Exam - 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?

Show Suggested Answer Hide Answer
Suggested Answer: C

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

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Weldon
8 months ago
Wait, are we really sure about the sensitivity to economic conditions?
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Tambra
8 months ago
A makes sense, but what if they don't pay dividends every year?
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Elmer
8 months ago
Not sure about D, seems too complex for a small business.
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Yong
9 months ago
I think C could work too, especially with similar companies.
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Sherly
9 months ago
Definitely A, dividends are key for unlisted companies.
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Justine
9 months ago
I feel like net asset valuation might not capture the earnings potential well enough, but it could be a fallback if the other methods don't fit.
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Noe
9 months ago
The discounted cash flow analysis seems complex, but I recall it being useful for companies sensitive to economic conditions. I just hope I remember the right steps!
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Shawna
9 months ago
I think the P/E based valuation could work too, especially since there are comparable listed companies, but I’m a bit uncertain about how to adjust for the differences.
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Dulce
10 months ago
I remember we discussed how the dividend valuation model might be suitable since the company pays annual dividends, but I'm not sure if it's the most accurate.
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Jesus
10 months ago
Easy peasy! The correct term is definitely packets, not bits. No change needed here, I'm going with option A.
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Bette
10 months ago
I remember a practice question where the term 'larceny' implied stealth, so this sounds like it might be false.
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Avery
10 months ago
I practiced some similar questions, and `rm -rf` always came out as the riskiest command. Just can't lose sight of the importance of backups!
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Remona
10 months ago
Okay, I think I've got it. The auditor needs to be independent and report to management to avoid any bias or retaliation. That's the most important requirement.
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Trina
1 year ago
I'm just wondering if the dominant shareholders are going to share any of those juicy dividends with the rest of us. Asking for a friend, of course.
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Rolland
1 year ago
C: P/E based valuation using the P/E of a similar company.
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Melinda
1 year ago
B: Net asset valuation.
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Jacquline
1 year ago
A: Dividend valuation model.
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Apolonia
1 year ago
Net asset valuation? Really? This is no lemonade stand, this is a serious business we're talking about here. Let's keep it professional, folks.
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Myra
1 year ago
Discounted cash flow analysis is always a solid choice, especially when you factor in the market value of debt. This company sounds like it could use a bit more rigor in its valuation.
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Ellsworth
1 year ago
C: Dividend valuation model may not be as accurate for this type of unlisted company.
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Portia
1 year ago
B: I agree, especially for a company with earnings sensitive to economic conditions.
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Yuette
1 year ago
A: I think using the discounted cash flow analysis at WACC plus the market value of debt would give the most accurate equity value.
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Elinore
1 year ago
I'm not sure the dividend valuation model is the way to go. With a small business in a large industry, the comparable P/E approach might give a more accurate picture of the equity value.
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Nida
1 year 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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Vi
1 year ago
D) Discounted cash flow analysis at WACC (based on cash flows after tax but before financing) plus the market value of debt.
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Talia
1 year ago
C) P/E based valuation using the P/E of a similar company.
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Nickolas
1 year ago
B) Net asset valuation
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Harris
1 year ago
A) Dividend valuation model.
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Evette
1 year ago
D) Discounted cash flow analysis at WACC (based on cash flows after tax but before financing) plus the market value of debt.
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Tyisha
1 year ago
C) P/E based valuation using the P/E of a similar company.
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Alecia
1 year ago
B) Net asset valuation
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Kirk
1 year ago
A) Dividend valuation model.
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Tony
1 year 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
1 year 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
1 year 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
1 year 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
1 year 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
1 year 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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