Consider pacific energy company and u. s. bluechips, inc., both of which reported earnings of $952,000. without new projects, both firms will continue to generate earnings of $952,000 in perpetuity. assume that all earnings are paid as dividends and that both firms require a return of 12 percent.

what is the current pe ratio for each company?

PE ratio for each company = 8.33

Explanation:

Using the zero growth model, total value of each company's shares = = = 7,933,333.33

The PE ratio for each firm = = = 8.33

This means that for every dollar of earnings,  investors are willing to $8.33 for each firm.

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