be in seven years? 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. E. Atlantic Energy has a new project that will increase earnings by $300,000 in perpetu- ity. Calculate the new PE ratio of the firm
be in seven years? 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. E. Atlantic Energy has a new project that will increase earnings by $300,000 in perpetu- ity. Calculate the new PE ratio of the firm
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Price earning ratio question. Can this be solved using excel? Can you assist with answering this question
Transcribed Image Text:Sany's dividend be in seven years?
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 perpetu-
ity. Calculate the new PE ratio of the firm.
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