Question 1

**Section A**

Quantum Logistics is a privately held service firm. Its owners wish to value the company using the Price/Earnings (P/E) ratio method. A suitable listed proxy company has an earnings yield of 8%.

Quantum Logistics recently reported an Earnings Per Share (EPS) of $0.40.

Using the proxy company's data, what is the estimated share price of Quantum Logistics?

Accepted Answer

First, convert the earnings yield into a P/E ratio by taking its reciprocal (1 / Earnings Yield). Then, multiply the resulting P/E ratio by the EPS to find the share price.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Multiplying the EPS directly by the earnings yield ($0.40 * 0.08 = $0.032).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FM — Financial Management Practice Exam 5

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