Financial Accounting Consider Pacific Energy Company and U.S. Bluechips, Inc., both of whichreported earnings of $957,000. Without new projects, both firms willcontinue to generate earnings of $957,000 in perpetuity. Assume that allearnings are paid as dividends and that both firms require a return of 14percent.a. What is the current PE ratio for each company?b. Pacific Energy Company has a new project that will generate additionalearnings of $107,000 each year in perpetuity. Calculate the new PE ratioof the company.c. U.S. Bluechips has a new project that will increase earnings by $207,000in perpetuity. Calculate the new PE ratio of the firm.

Given:Both companies, Pacific Energy and U.S. Bluechips, report earnings of $957,000 in…

Answered: Consider Pacific Energy Company and…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Finally, assume that the new product line isexpected to decrease sales of the firm’s otherlines by $50,000 per year. Should this be considered in the analysis? If so, how?
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Wildhorse Co. is considering an investment that will return a lump sum of $928,900, 8 years from now. For calculation purposes, use 5 decimal places as displayed in the factor table What amount should Wildhorse Co. pay for this investment to earn an 12% return. ( round answer to 2 decimal places, e.g. 25.25) Lincoln Company Should pay?
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