CIMA F3 Exam With Confidence Using Practice Dumps

We want methods that give the value of equity, not the value of the whole entity.

A. D₁ / (kₑ – g) → Gordon growth dividend model = value of equity (share value). ✅

B. Total earnings × P/E → market capitalisation = equity value. ✅

C. Free cash flows to all investors discounted at WACC → enterprise / firm value (equity + debt). ❌

D. Free cash flows to equity discounted at cost of equity → equity value. ✅

E. NCA + CA − CL → value of net assets before deducting long-term debt, i.e. value of the business to all capital providers, not just equity. ❌

So correct choices: A, B, D.

A P/E valuation should use forecast sustainable earnings, not just the last year’s profit. ✅ (C)

The “E” in P/E is earnings after interest and tax, not profit before interest and tax. ✅ (D)

The P/E multiple should be based on comparable companies in the same sector, not the whole market. ✅ (E)

Statement A is wrong (unlisted companies usually get a discount, not an uplift).

Statement B is wrong (P/E gives an equity value, not whole entity value).

Answer Q34: C, D, E

Vertical integration means moving up or down the value chain (suppliers or distributors), not acquiring similar producers (horizontal integration) or unrelated accessory businesses. Buying a listed international logistics firm brings distribution in-house and so is the clearest example of vertical integration that could improve margins.