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Calculate the new pe ratio of the firm

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Consider Pacific Energy Company and Atlantic Energy, Inc., both of which reported earnings of $969,000. Without new projects, both firms will continue to generate earnings of $969,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a return of 12 percent.

a. 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.)

b. Pacific Energy Company has a new project that will generate additional earnings of $119,000 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.)

c. Atlantic Energy has a new project that will increase earnings by $219,000 in perpetuity. Calculate the new PE ratio of the firm. (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Reference no: EM132616009

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