Reference no: EM132459821

Problem:

Consider Pacific Energy Company and U.S. Bluechips, Inc., both of which reported earnings of $953,000. Without new projects, both firms will continue to generate earnings of $953,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a return of 13 percent

Question 1: What is the current PE ratio for each company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Question 2: Pacific Energy Company has a new project that will generate additional earnings of $103,000 each year in perpetuity. Calculate the new PE ratio of the company. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Question 3: U.S. Bluechips has a new project that will increase earnings by $203,000 each year in perpetuity. Calculate the new PE ratio of the company. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)