Company J plans to acquire Company K, an unlisted company whose equity is to be valued using a P/E ratio approach.

Company J plans to acquire Company K, an unlisted company whose equity is to be valued using a P/E ratio approach. 

A listed company has been identified which is very similar to Company K and which can be used as a proxy.

However, the growth prospects of Company K are higher than those of the proxy.

The Directors of Company J are aware that certain adjustments will be necessary to the proxy company's P/E ratio in order to obtain a more reliable valuation.  

The following adjustments have been agreed:

   • 20% due to Company K being unlisted.

   • 15% to allow for the growth rate difference.

The total adjustment to the proxy p/e ratio is: