The Board of Directors of a listed company wish to estimate a reasonable valuation of...

CIMA F3 Question Answer

The Board of Directors of a listed company wish to estimate a reasonable valuation of the entire share capital of the company in the event of a takeover bid.

The company's current profit before taxation is $4.0 million.

The rate of corporate tax is 25%.

The average P/E multiple of listed companies in the same industry is 8 times current earnings.

The P/E multiple of recent takeovers in the same industry have ranged from 9 times to 10 times current earnings.

The average P/E multiple of the top 100 companies on the stock market is 15 times current earnings.

Advise the Board of Directors which of the following is a reasonable estimate of a range of values of the entire share capital in the event of a bid being made for the whole company?

Minimum = $36 million, and maximum = $40 million.

Minimum = $27 million, and maximum = $30 million.

Minimum = $32 million, and maximum = $60 million.

Minimum = $24 million, and maximum = $45 million.