Consider Pacific Energy Company and U.S. Bluechips, Inc., both of which reported earnings of $968,000. Without new projects, both firms will continue to generate earnings of $968,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a return of 15 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.)
PE ratio times
b. Pacific Energy Company has a new project that will generate additional earnings of $118,000 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.)
PE ratio times
c. U.S. Bluechips has a new project that will increase earnings by $218,000 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.)
PE ratio times