Consider Pacific Energy Company and U.S. Bluechips, Inc., both of which reported earnings of $953,000. Without...
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.
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 $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.)
c. 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.)
Homework Answers
![Part-(al: P/E Ratio Firms value/ Firms earnings where Firms value Perpetual earnings/ Required return rate U.S Pacific EnergyBluechips, Company Inc. $953,000$953,000 Perpetual earnings Required return rate Firms value 13% 13% $7,330,769.23|$7,330,769.23 [$953,000/ 13%) P/E Ratio 7.69 7.69 17,330,769.23/$953,000 Part-(b)& (C Part-(b) Part-(c U.S Pacific EnergyBluechips, Company Inc. $953,000$953,000 $103,000$203,000 Perpetual earnings Additional earnings Required return rate Firms value 13% 13% $8,123,076.92 | $8,892,307.69 [Pacific-($953,000+$103,000) / 13%; U.S. Bluechips-($953,000+$203,000)/13%) P/E Ratio 8.52 9.33[Pacific-$8,123,076.92 $953,000; U.S. Bluechips $8,892,307.69/ $953,000]](http://img.homeworklib.com/questions/6a8aa910-7488-11ea-8539-e5f920a221c1.png?x-oss-process=image/resize,w_560)
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Consider Pacific Energy Company and U.S. Bluechips, Inc., both
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