conflict of answers

It depends on what the question provides you with and asks you to do:

The P/E valuation method is a very simple method that values the equity of a business by applying a suitable P/E ratio to the business’s earnings (profit after tax).

Value of company’s equity = Total post-tax earnings × P/E ratio
Value per share = EPS × P/E ratio

The current post-tax earnings, or EPS, for a company, can easily be found by looking at the most recent published accounts. However, these published figures will be historic, whereas the earnings figure needed for valuation purposes should be an expected, future earnings figure.

It is perfectly acceptable to use the published earnings figure as a starting point, but before performing the valuation, the historic earnings figure should be adjusted for factors such as:
• one-off items which will not recur in the coming year (e.g. debt write offs in the previous year)
• directors’ salaries which might be adjusted after a takeover has been completed
• any savings (‘synergies’) which might be made as part of a takeover.

The P/E ratio for a listed company is a simple measure of the company’s share price divided by its earnings per share. The P/E indicates the market’s perception of the company’s current position and its future prospects.
For example, if the P/E ratio is high, this indicates that the company has a relatively high share price compared to its current level of earnings, suggesting that the share price reflects good growth prospects of the company. An unlisted company has no market share price, so has no readily available P/E ratio. Therefore, when valuing an unlisted company, a proxy P/E ratio from a similar listed company is often used.

Proxy P/E ratios – an unlisted company will not have a market-driven P/E ratio, so an industry average P/E, or one for a similar company, will be used as a proxy.
However, proxy P/E ratios are also sometimes used when valuing a listed company – of course, if a listed entity’s own P/E ratio is applied to its own earnings figure, the calculation will just give the existing share price.

What are you valuing?

GWW is a Target acquisition
GWW for example gives you a sector ratio of 17 so it is obvious to use this.

Pike Co is looking to buy a company Minnow
Other similar Co’s have a PE ratio of 7 – proxy

The MV of Minnow using earnings is
7m * 1.03 est growth – (100,000 * 0.7) salary payment = 7.14m
7.14m * 7 = 49.9 m

The MV of Minnow – Based on disc c/flows
The free cash flow is the total available for both equity and debt (it is before interest) and discounting at the WACC then gives the total value of the business (including debt)
It is discounting the flows to shareholders (after interest) at the cost of equity, that gives the value of equity.

Perpetuity = 1/ (r-g)
PV of future c/flows = 6 * 1/ (0.12-0.04) =75m
MVe = 72.5 m (excl bank loan)

It does it states in the original exam:

Price earnings ratio calculation using forecasted earnings would receive full credit
So in other words Kaplan has removed it from the exam question in the kit.

I am getting very sad about telling you this but “Move on from this very old question”

Tanglefoot Co is an unlisted company. Its most recent earnings per share (EPS) was $0.53 per share and next year’s EPS is forecast to be 10% higher.
Tanglefoot Co has $50,000 of issued share capital ($0.10 nominal value per share).
The average price-earnings ratio of listed firms in the same business sector is 12 times.
Required:
Estimate the total value of Tanglefoot Co using the price/earnings ratio method.
0.53 * 12 = 6.36 * 500000 = $3.18
The “sector” p/e ratio should be applied to recent earnings rather than forecast

I have answered this already ………… I refer you to my long answers above