The P/E ratio of the given company. Introduction: Profit Earning Ratio (P/E Ratio): It refers to the ratio between the price of a share of a company and the earnings on the share, which is earning per share of the company. In other words, it can be defined as the ratio between the price per share of the company and its earnings per share.

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Moose Enterprises finds it is necessary to determine its marginal cost of capital. Moose’s current capital structure calls for 50 percent debt, 30 percent preferred stock, and 20 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 9.6 percent; preferred stock, 9 percent; retained earnings, 10 percent; and new common stock, 11.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, Ke.) b. If the firm has $18 million in retained earnings, at what size capital structure will the firm run out of retained earnings? c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 20 percent of the capital structure, but will all be in the form of new common stock, Kn.) d. The 9.6 percent cost of debt referred to earlier…

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Question

Chapter 9, Problem 3DQ

Summary Introduction

To identify: The P/E ratio of the given company.

Introduction:

Profit Earning Ratio (P/E Ratio): It refers to the ratio between the price of a share of a company and the earnings on the share, which is earning per share of the company. In other words, it can be defined as the ratio between the price per share of the company and its earnings per share.

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