Consider Pacific Energy Company and U.S. Bluechips, Inc., both of which reported earnings of $1,100,000. Without new projects, both firms will continue to generate earnings of $1,100,000 in perpetuity. Assume that all earnings are paid as dividends and that both firms require a 12 percent rate of return.

a. What is the current PE ratio for each company? b

B. Pacific Energy Company has a new project that will generate additional earnings of $220,000 each year in perpetuity. Calculate the new PE ratio of the company.