The correct answers are: Seed Inc has better-quality assets than Fortunate; Seed Inc has better growth prospects that Fortunate; Seed is in a different industry from Fortunate, where average P/E ratios are higher.

A higher P/E ratio valuation may be justified when the target company has higher growth prospects, or when it is in an industry where the normal P/E ratio is higher than in the industry of the bidder. Better-quality assets might also be a reason for offering a price that values the target on a higher P/E. However, higher gearing ratios are more likely to reduce a P/E ratio than increase it, and private companies will be valued on a lower P/E than public companies in the same industry.