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Us blue chips has a new project that will increase earning

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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. 

Reference no: EM131115887

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