Reference no: EM132952996
Consider Pacific Energy Company and Atlantic Energy, Inc., both of which reported earnings of $957,000. Without new projects, both firms will continue to generate earnings of $957,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a return of 14 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 $107,000 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 $207,000 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.)
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