1. The earnings per share of Subsidies-Forever-And-Ever (SFAE), a wind energy producer, are $5. The median P/E ratio in the wind energy sector (excluding SFAE) is 44.

1. If SFAE has 100,000 shares outstanding, estimate the value of its equity.

(4 points)

2. How would the P/E ratio in the wind energy sector change (increase, decrease, or stay the same) if the risk-free rate decreased? Please explain your answer for full credit.

(5 points)