Consider Pacific Energy Company and Atlantic Energy, Inc., both of which reported earnings of $790,000. Without new
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Consider Pacific Energy Company and Atlantic Energy, Inc., both of which reported earnings of $790,000. Without new projects, both firms will continue to generate earnings of $790,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a return of 11 percent.
a. What is the current PE ratio for each company?
b. Pacific Energy Company has a new project that will generate additional earnings of $175,000 each year in perpetuity. Calculate the new PE ratio of the company.
c. Atlantic Energy has a new project that will increase earnings by $350,000 in perpetuity. Calculate the new PE ratio of the firm.
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Related Book For
Corporate Finance
ISBN: 9781260772388
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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