Company X is an established, unquoted company which provides IT advisory services.
The company’s results and cashflows are growing steadily and it has few direct competitors due to the very specialised nature of it’s business. Dividends are predictable and paid
annually.
Company P is looking to buy 30% of company X’s equity shares.
Which TWO of the following methods are likely to be considered most suitable valuation methods for valuing company P’s investment in Company X?
A . Asset based using replacement cost
B . Dividend based using DVM
C . Cash based using free cash flow before interest
D . P/E ratio method using IT industry average
E . Earnings yield method using a listed IT company as proxy
Answer: B,C