Answer and Explanation:
The computation is shown below:
a. Current PE ratio is
For Pacific energy company
= Price รท Earnings
= ($967,000 รท 0.13) รท ($967,000)
= 7.69 times
For U.S Bluechips
= Price รท Earnings
= ($967,000 รท 0.13) รท ($967,000)
= 7.69 times
b. The new PE ratio is
= Price รท Earnings
= (($967,000 + $117,000) รท 0.13) รท ($967,000)
= 8.62 times
c. The new PE ratio is
= Price รท Earnings
= (($967,000 + $217,000) รท 0.13) รท ($967,000)
= 9.42 times