Question 1

**Section A**

PixelPlay is an unquoted esports franchise generating an annual post-tax profit (earnings) of $2.5 million. A comparable publicly traded esports company, MetaGaming PLC, has a Price/Earnings (P/E) ratio of 14.

Due to PixelPlay being unquoted and less liquid, an acquirer applies a 20% discount to the P/E multiple.

What is the estimated equity value of PixelPlay?

Accepted Answer

Step 1: Adjust the proxy P/E ratio downwards by the illiquidity discount. Step 2: Multiply the adjusted P/E ratio by the company's earnings.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Forgetting to apply the 20% discount, leading to the unadjusted value of $35m.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FM — Financial Management Practice Exam 1

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