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Sir question 18 in the above link seems very confusing to me. They have said in the question that the REVENUE is going to increase by 20%. So how have they applied 20% to the earnings figure. Secondly the company is not listed so we shud take 50 or 60% of PE ratio of listed company. But they have taken the actual figure. :/
And one more thing. If we are given an earnings amount for 1 year ahead and current earnings. Do we take current earnings or future earnings for the PE ratio method of business valuation?
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You do not say what answer they have given for Q 18, but they should have multiplied the 20X4 earnings of 2.8 by the PE ratio of 15.2, which gives $4.26.
Revenue increasing by 20% is of no relevance.Using a lower PE for an unquoted company is normal but is certainly not a rule. In an MCQ such as this you cannot be expected to use a lower PE unless the question specifically told you how much lower.
You apply the PE to the current earnings to get a current market value.
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