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Q. Price-Earnings Ratio Consider Pacific Energy Industry and U.S. Blue chips, Inc., both of which reported earnings of $750,000. Without new projects, both companies will continue to generate earnings of $750,000 in perpetuity. Assume that all earnings are paid as dividends and that both companies require a 14 percent rate of return.

(1) Illustrate what is the present PE ratio for each industry?

(2) Pacific Energy Industry has a new project that will generate additional earnings of $100,000 each year in perpetuity. Calculate the new PE ratio of the industry.

(3) U.S. Blue chips has a new project that will increase earnings by $200,000 in perpetuity. Calculate the new PE ratio of the company.

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Business Management, Management Studies

Category:- Business Management
Reference No.:- M9368934

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