Assume that all earnings are paid as dividends and that


Consider Pacific Energy Company and U.S. Bluechips, Inc., both of which reported earnings of $763,000. Without new projects, both firms will continue to generate earnings of $763,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a 13 percent rate of return.

Required:

What is the current PE ratio for each company?

 

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Finance Basics: Assume that all earnings are paid as dividends and that
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