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Answers

Example 3

Molier is an unquoted entity with a recently reported after-tax earnings of
$3,840,000. It has issued 1 million ordinary shares with nominal value of $0.50
each. A similar listed entity has a P/E ratio of 9.

What is the current value of one ordinary share in Molier using the P/E
basis of valuation?

A $34.56 million

B $69.12 million

C $34.56

D $69.12

Solution

The answer is (C).

EPS = 3,840,000/1,000,000 shares = $3.84

Value per share = P/E × EPS = 9 × $3.84 = $34.56

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