Problem 5 Stock Valuation: Change, Inc., is expected to maintain a constant 4.9 percent growth rate in its dividends, indefinitely. If the company has a dividend yield of 5.2 percent, what is the required return on the companys stock? Problem 25 Price-Earnings Ratio: Consider Pacific Energy Company and Atlantic Energy, Inc., both of which reported earnings of $720,000. Without new projects, both firms will continue to generate earnings of $720,000 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 $150,000 each year in perpetuity. Calculate the new PE ratio of the company.

c.Atlantic Energy has a new project that will increase earnings by $300,000 in perpetuity. Calculate the new PE ratio of the firm.