Question: Penn Central Electricity has existing assets that generate $ 4 in earnings per share. If the firm does not invest except to maintain existing assets,
Penn Central Electricity has existing assets that generate $ in earnings per share. If the firm does not invest except to maintain existing assets, EPS is expected to remain constant at $ a year. However, Penn Central can start next year with investing $ per share a year in developing a newly discovered source for electricity generation. Each investment is expected to generate a permanent return. However, the source will be fully developed by the fifth year of investing in it which means that no more new investments are possible from year onwards. Investors require an rate of return.
What is the priceearnings PE ratio?
What is the stock price if the firm would have had the same investment opportunity for years,but now while maintaining a dividend payout ratio during these five years?
What is the NPVGO if the firm has the investment opportunity in perpetuity maintaining a retention ratio?
If you could show the work and how to solve these problems that would be great, my class does not use excel.
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