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Consider Pacific Energy Company and U.S. Blue chips, Inc., both of which reported earnings of $750,000. Without new projects, both firms will continue to generate earnings of $750,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a 14 percent rate of return.
a. What is the current PE ratio for each company?
b. Pacific Energy Company has a new project that will generate additional earnings of $100,000 each year in perpetuity. Calculate the new PE ratio of the company.
c. U.S. Blue chips has a new project that will increase earnings by $200,000 in perpetuity. Calculate the new PE ratio of the firm.
You bought one of Great White Shark Repellant Co.’s 11 percent coupon bonds one year ago for $810. These bonds make annual payments and mature 7 years from now. Suppose you decide to sell your bonds today, when the required return on the bonds is 13 ..
A project that provides annual cash flows of $1,930 for 8 years costs $7,700 today. Requirement 1: At a required return of 8 percent, what is the NPV of the project? At a required return of 24 percent, what is the NPV of the project?
question 1assume a manufacturer incurs 2000000 hours of direct productive labor in a year at a total direct labor cost
What are the portfolio weights for a portfolio that has 158 shares of Stock A that sell for $35 per share and 135 shares of Stock B that sell for $25 per share?
As a knowledgeable investor, would you prefer to invest in a highly efficient market or a relatively inefficient market? Explain. As an inexperienced investor, would you prefer to invest in a highly efficient market or a relatively inefficient market..
An investment project has annual cash inflows of $4,200, $5,100, $6,300, and $5,500, and a discount rate of 15 percent. What is the discounted payback period for these cash flows if the initial cost is $6,900? What is the discounted payback period fo..
Daniel Trumpe has computed the EOQ for a product he sells to be 500 units. However, Daniel figures he has plenty of cash to spend. Therefore, he wants to order 600 units each time he places an order. What will be the impact on his holding costs and o..
Suppose an individual invests $20,000 in a load mutual fund for two years. The load fee entails an up-front commission charge of 3.0 percent of the amount invested and is deducted from the original funds invested. If the investor reinvests the annual..
Explain how the tax code allows depreciation to contribute to cash flow. Explain why inflation may restrict the usefulness of the balance sheet as normally presented.
Current annualized yields on 1 year US treasury securities are only .28%....while current annualized yields on 2year US treasury securities are .69% (note you may assume that both 1 and 2year securities in this example are “0” coupon securities with ..
What is the expected return on a portfolio that is equally invested in the two assets? If a portfolio of the two assets has a beta of .5, what are the portfolio weights? If a portfolio of the two assets has an expected return of 8 percent, what is it..
Prepare journal entries to record the April purchases of trading securities by Business Solutions and prepare the adjusting entry to record any necessary fair value adjustment to its portfolio of trading securities.
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