Question

Consider Pacific Energy Company and U.S. Bluechips, Inc., both of which reported earnings of $959,000. Without new projects, both firms will continue to generate earnings of $959,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a return of 12 percent. a. What is the current PE ratio for each company? (

Answer 1

Answer:

PE ratio for both company is =  8.33 %

Explanation:

given data

reported earnings = $959,000

generate earnings = $959,000

require return = 12 percent

to find out

current PE ratio

solution

we get here PE ratio of each company that is here express as

PE ratio = $\frac{price}{earning}$    .....................1

put here value we get

PE ratio =  $\frac{\frac{959000}{0.12}}{959000}$

PE ratio =  8.33 %

so PE ratio for both company is =  8.33 %